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D. M. PHELPS, Ph.D. 

Professor of Marketing 
University of Michigan 

19 Al 


5 "£ 5" 
p53 S> 




First printing, October 1947 



IN RECENT years, marketing executives have taken on additional 
responsibility and authority in the field of product planning, ft 
has come to be generally recognized that the function of product plan- 
ning should be performed jointly by production and marketing execu- 
tives and that other departmental groups should be consulted likewise. 
These are highly significant facts, since they bear witness to a change 
in the philosophy of management. While economists have long recog- 
nized that the ultimate objective of all economic activity is the satisfac- 
tion of human wants, relatively little has been done by business manage- 
ment until recently to determine whether the products offered upon 
the market have adequately met the needs and desires of consumers. It 
was largely taken for granted that products which could be manufac- 
tured successfully and sold at a reasonable price would be satisfactory 
to consumers. But the emergence of a new philosophy in the business 
community is now clearly apparent. In its practical expression, this 
philosophy takes the form of a continual effort on the part of business 
concerns to determine what utilities are desired by consumers as a 
preliminary step in product planning and to learn the attitude of 
consumers toward existing products so that changes can be made in 
accordance with their desires. Another expression of this philosophy 
is the careful testing of products before they are distributed widely 
in the market. This is all a process of attempting to create a reasonable 
measure of adjustment between the products produced and the char- 
acteristics of demand. Only to the extent that this attempt is successful 
will the basic objectives of our economic system be realized. 

Product planning, with which this book is concerned, is only one 
part of the field of sales management. It is an important part, and 
one which has been relatively neglected by writers. New materials 
have recently appeared on some aspects of sales management, notably 
on selection, training, and control and supervision of the sales force. 
New materials are still needed, both by practitioners and teachers, in 
product planning, pricing, planning the sales effort, and in budgeting 
and costing of sales operations. 

The chapter on the "Constitution of a Line of Products" is largely 
he work of Charles N. Davisson. Assistant Professor of Marketing 


in the School of Business Administration, the University of Michigan. 
The material presented in this chapter is taken in part from a larger 
study, which may subsequently be published in full. The contribution 
of Professor Davisson to the book, and likewise the informal co-opera- 
tion of Professors Clare E. Griffin, J. Howard Westing, Edgar H. 
Gault, and Mr. Stewart Rewoldt, all of the School of Business Ad- 
ministration, are gratefully acknowledged. 

D. M. Phelps 

University of Michigan 
October, 1947 



I. Introduction 1 

The Merchandising Function. Responsibility for Product Planning. 

II. Product Development 9 

Forms Taken in Product Development. Extent of Product Development 
in Recent Years. General Reasons for Product Development. Specific 
Incentives for Product Development. Sources of Product Ideas. Problem 
of Design Piracy. Procedure in Product Development. Timing of New 
Product Introduction. 

III. Constitution of a Line of Products 41 

Nature of the Problem. Variables in Product Structure. Product Varieties 
— Expansion and Simplification. Reasons for Line Expansion. Maximum 
Utilization of Fixed Costs. Desire for a Complete Line. Combination of 
Risks. Limitations to Line Expansion. Manufacturing and Marketing Re- 
quirements. Summary. 

IV. Product and Market Testing 77 

Technical Testing versus Consumer Testing of Products. Significance of 
Product Testing. Analysis versus Performance Testing. The Use of Inde- 
pendent Testing Laboratories. Problems in Consumer Testing. Procedures 
Used in Pre-testing. Preliminary Market Testing. Post-testing. Final 

V. Brands and Trade-Marks 117 

Brands versus Trade-Marks and Other Marks. Types of Brands. Objec- 
tives in Branding. Specific Branding Problems. Selection of Brand 
Names, Trade-Marks, and Other Marks. Coverage of Brands. Competi- 
tion with Distributors' Brands. Review of Trade-Mark Legislation. 
Restrictions on Registration. Procedures Affecting Registration. Ad- 
vantages Acquired through Registration. Evaluation of Important Pro- 
visions of the Lanham Act. Summary. 

VI. Packaging the Product 186 

Basic Objectives in Packaging. Complexity of the Packaging Problem. 
Timing of Package Changes. Objectives in Repackaging. Initial Step in 
Repackaging. Questions of Organization and Procedure. Market Testing 
of Packages. 

VII. Labels and Labeling 215 

Recent Emphasis on Labeling. "Informative" Labeling. Manufacturers' 
Attitude toward Informative Labeling. Manufacturers' Labeling Problems. 
Problem of Product Evaluation. Problem of Selection — Information for 
Labels. Problem of Presentation. Grade versus Descriptive Labeling. 
Advantages of More Effective Labeling. 



VIII. Warranty and Service Policies 245 

Why the Buyer Needs Assurance before Purchasing. How Assurance Is 
Given. Implied and Express Warranties. Promotional versus Protective 
Aspects of Warranties. The Nature of Service. Promotional versus Pro- 
tective Aspects of Service. Factors Which Affect the Service Problem. 
Charging for Service Work. Organization and Administration of Service. 
Suggestions for a Service Policy. 

Index 289 

Chapter I 

THE importance of product planning cannot easily be overstated. 
It has frequently been said that an excellent product sells itself. 
Although this statement is manifestly incorrect if taken literally, still, 
like any broad generalization, it is more than a half-truth. A more 
correct statement of the general idea would be that the ease of selling 
varies directly with the excellence of the product. While this might not 
be true under all circumstances, still it can hardly be denied that selling 
problems are greatly simplified if a company has been unusually suc- 
cessful in designing a product which adequately meets consumers' needs 
and desires. Consumer interest is more easily aroused, consumer accep- 
tance of the product is more readily secured, dealers are more willing 
to handle it, sales volume is more likely to be high, and, as a result, 
selling costs per unit of product are likely to be low. Thus progressive 
business concerns attempt to discover what consumers' needs and 
desires are, in so far as that is possible, and then attempt to create more 
effective products so that the problems of selling will be eased rather 
than aggravated by the product itself and by its relative standing among 
those of competing companies. This is the first, and in many ways the 
most important, task of those intrusted with the marketing activities 
of a manufacturing concern. 

In these few chapters we shall be concerned with this general 
task of planning the product. The problem involved, briefly stated, is 
to find out what consumers' needs and desires are in relation to the 
products in which a concern is interested and then to create products 
in conformance with the information secured. To proceed in this man- 
ner is good business policy, for it is directly in line with the principal 
objective of all economic activity, that is, the satisfaction of consumer 
wants. Not only does the suggested procedure achieve this objective 
to a marked degree, but it likewise helps to attain the chief objective of 
the individual business enterprise, which is profitable operation. 

The word "product" for the purposes of our discussion will be 
thought of in a very inclusive sense as being that which the consumer 
actually receives when making a purchase. Thus, in addition to 
topics such as product development, product testing, and the constitu- 
tion of a line of products, such others as packaging, branding, and 


labeling will be dealt with. In a very real sense the consumer buys 
assurance as to quality and information about the product through 
branding and labeling. Furthermore, when a person buys a product 
such as an automobile, he is buying not only so much physical material 
combined in a certain way but also assurance that it will giwe the utility 
of transportation. Assurance is given through the manufacturers' repu- 
tation, through written warranties, and through knowledge that service 
will be available when needed. Therefore, this book will include 
a chapter on warranty and service policy. Again it should be noted that 
all these topics have to do with planning the product, that is, with plan- 
ning that which is finally offered to consumers. In the remainder of 
this chapter questions of product development in its initial stages will 
be considered. 

The Merchandising Function 

Planning for adjustment of the merchandise produced or offered for 
sale to consumer needs and desires, with its attendant activities of pro- 
cedure and control, is commonly known as "merchandising." 1 As so 
defined, it comprehends both qualitative and quantitative adjustments, 
that is, questions not only of what to produce but how much to produce 
and when to produce. Merchandising thus includes market analysis, 
which deals with inquiries into the nature and characteristics of present 
and potential demand for products and services. If the objective of an 
inquiry is to secure information from the market which may ultimately 
affect the nature of a product or which will disclose new uses to which 
a product may be put and thus increase the utilities which are offered 
to buyers it is called 'qualitative" market analysis. If, however, the 
objective is s to determine how much can be sold, when, and in what 
parts of the total market, it is called "quantitative" market analysis. 

Not infrequently people think of merchandising as dealing only 
with qualitative adjustments to consumer demand, in which case it 
would exclude quantitative market analysis. Then it would comprehend 
only what would be expected under such topics as planning the product, 
product policy, or product research. But this is none too realistic when 
we consider actual practice in reference to the responsibilities which are 
customarily assigned to merchandising departments in those concerns 

1 It should be noted that "merchandising" as here defined does not include sales 
promotion or selling activities. Although the terms "merchandising" and "selling" are 
still frequently used synonymously, there is increasing evidence of an inclination to distin- 
guish carefully between them. What merchandising comprehends will become more 
apparent in succeeding paragraphs. 


that have segregated work of a merchandising character. Moreover, it 
seems reasonable that those people within an organization who deter- 
mine what to produce, after inquiries into the nature and characteristics 
of demand, and also new uses and applications for products should be 
in the best position to determine how much to produce, when, and what 
inventories need to be carried. Either the use or the user is, in fact, 
the unit of measurement for quantitative market analysis. Facts about 
the use of a product must be known before estimates can be made of 
the quantity of product which will be needed for that use. If the objec- 
tive of a study is to determine the extent of demand for a product in 
certain known uses, then the discovery of new uses and applications 
becomes a by-product of that study. More frequently there are multiple 
objectives, all of which can be accomplished in a single study. A firm 
may wish to determine product uses, both present and future; the 
urgency of each use, as determined by the utility given or the savings 
achieved; the probable extent of demand for each use; and, finally, the 
manner in which the product fails to meet consumers' needs. Any one 
of these may be the major objective of an investigation, but some infor- 
mation on each is likely to be secured while the procedure is being 
carried forward. The close relationship of these tasks is probably suffi- 
cient reason for including them under the general term of "merchandis- 
ing." However, it should be recognized that the problems of qualitative 
and quantitative adjustments to demand are quite different in nature. 
Furthermore, the techniques used in their solution differ appreciably. 
Thus the two should be segregated for discussion. Only questions per- 
taining to the product itself will be discussed in this volume. 

Responsibility for Product Planning 

Many people would presume offhand that the manufacturer must, 
of necessity, take responsibility for determining the characteristics of 
product, that he must make the qualitative adjustments necessary in 
product to meet the demands of consumers. But this part of the mer- 
chandising task may, at least in part, be performed by consumers, dis- 
tributors, or industrial or institutional buyers. In a broad sense the 
selection of what shall be produced is not in the hands of producers but 
in those of consumers. In a capitalistic economy production is guided 
by consumer choice acting through the price system. Each consumer 
expenditure is an alternative one. When one product is chosen rather 
than another, its total demand is thereby increased, and the total de- 
mand for some other product is necessarily less than it otherwise would 


be. In this sense consumers by their choices determine the volume of 
what shall be produced by manufacturers, that is, the extent of "repro- 
duction" of products which have been placed upon the market. But do 
they likewise determine the nature of products — what characteristics 
products shall have when they first appear in the market — or is their 
contribution only in the decision as to whether to produce more or less 
of each product after products have been placed on the market initially? 

We might conceive of an economy in which consumers determined 
the exact characteristics which they wished in products, that is, in which 
consumers did all the work of designing, they, in turn, ordering these 
products from distributors and the latter, in turn, ordering from the 
manufacturer. All manufacturing would then be done on advance 
orders, and the merchandising work of manufacturers would be entirely 
shifted to the consumer. These conditions are in part approximated 
when a lady selects a pattern and cloth and then engages a dressmaker 
to produce the finished product. Even in this case, however, the design- 
ing was done by others. In some instances consumers may actually 
determine the form which the product will take, but they rarely do so. 
They have neither the ability nor the willingness to determine their 
wants before production takes place. In most instances they have only 
vague, half -formed ideas in regard to the products which will suit their 
fancy or fill their needs. Ability effectively to aid in the design of new 
products or product improvements would be limited to a very few lines, 
if any, on the part of any one individual consumer. This does not deny 
that the consumer can be helpful in giving ideas about product in use 
to producers, but it does suggest that the initiative must come from 
other parties. What the consumer wishes, particularly in such products 
as clothing and house furnishings, is the privilege of inspecting a wide 
variety of merchandise before selection is made. Desire for a certain 
type or pattern is, therefore, the fruit of comparison and not the result 
of lengthy premeditation. Moreover, consumers do not wish to wait for 
products during the period of manufacture. Instead, they want imme- 
diate satisfaction of wants. If they ordered in advance of manufacture, 
their desires might well change in the meantime, and the product, when 
delivered, might not be acceptable to them. Thus the burden of quali- 
tative adjustment of product to demand is thrown upon the manufac- 
turer or upon distributing intermediaries. 

It is not unusual for distributors or industrial buyers to take the 
responsibility for designing product. Large department stores, mail- 


order houses, and grocery chains frequently determine the characteristics 
which they wish in certain products and then go to the manufacturer 
and get bids on production or, as not infrequently happens, manufacture 
the products themselves. There is evidence that distributors are taking 
much more of a hand in merchandising than formerly. 2 Furthermore, a 
good case can be made for the contention that they are in a particularly 
favorable position to judge the needs and desires of consumers because 
they are in constant and close contact with them. Particularly observant 
and inquisitive floor salesmen come to know a great deal about con- 
sumers' likes and dislikes in relation to certain types of product. This 
is truer for the heavy lines, such as household equipment and furnish- 
ings, than for drugs and groceries, in which the exchange of viewpoints 
between the salesman and the customer is often reduced to a minimum. 
A manufacturer might have to conduct a costly survey in order to get 
as adequate information about consumers' wants as that which may be 
secured in retail outlets through continuous contacts with consumers. 
Where marketing agencies assume responsibility for determining 
the characteristics desired in products, either one or both of two condi- 
tions are likely to be present. Either the marketing agency is large and 
more able financially than the manufacturing company, or, for some 
reason or other, it is in much better position to make accurate decisions 
regarding consumers' wants. Mail-order houses combine all the needed 
characteristics, and the largest department stores many of them. The 
volume of business of mail-order houses is very large; they are financially 
strong; and because of their widespread activities, which frequently 
include both mail-order business and the operation of retail stores, they 
are able to secure a fairly accurate picture of market needs and desires. 
But they labor under numerous disadvantages likewise. Although they 
can get the needed information from consumers, they are not so likely 
to have the technical research facilities to translate the information into 
product innovations or improvements. It is one thing to discover that 
a product is unacceptable to a large proportion of the consumers who 
have tried it, and for certain reasons, and quite another to change the 
product so that the objections voiced are overcome and no new ones 
created. Thus we often have what amounts to co-operation in the 
merchandising task. The large distributors get information in relation 

2 David R. Craig and Werner K. Gabler, "The Competitive Struggle for Market 
Control," Annals of the American Academy of Political and Social Science, Vol. CCIX, 
(May, 1940), pp. 84-107. 


to the qualitative aspects of demand and pass it on to manufacturers, 
who attempt to adjust their products in the light of that information. 

Under the conditions which now exist, large distributors could not 
appreciably relieve the manufacturer of the merchandising task. They 
sell a tremendous variety of merchandise, and, despite their size, they 
sell but small quantities of many items. It would not be feasible to 
attempt to determine the characteristics which were desired in all these 
items and, subsequently, either to change the product or to influence 
the manufacturer to do so. Then also it should be noted in this con- 
nection that mail-order houses do only approximately 2.4 per cent of 
the national retail business, including both mail-order sales and retail- 
store sales; and department stores other than those owned and operated 
by the mail-order houses do only 8.35 per cent of the business, according 
to 1939 Census data. 3 Even if these two types of distributors were very 
active in product development, still the manufacturer would have to 
assume the major responsibility for merchandising work. 

Industrial buyers very frequently have a commanding voice in 
determining the characteristics of the products which they purchase. 
Parts for assembly are produced according to buyers' specifications. 
The buyer may likewise determine in advance the characteristics desired 
in supplies of various types and ask for bids according to definite speci- 
fications. In the purchase of industrial equipment the buyer may play 
an important part in determining the characteristics needed in product. 
A conveyor system furnishes an excellent example. No two are likely 
to be identical. Each conveyor must be designed for the building in 
which it is to be used and for the particular service which it is expected 
to give. Determination of the type of system needed and of specifica- 
tions for the particular job is likely to result from the joint efforts of 
the buyer and the seller. 4 

It might be considered that the responsibility for planning and 
and development of new products would rest in part on the inventor, 
that he would determine market heeds, develop a product which would 
meet those needs, and then sell his product ideas to a manufacturer, who 
would subsequently produce and sell the product. This procedure is not 
uncommon, but only rarely are products fully developed in the mind of 
the inventor when his ideas are presented to the manufacturer. The 
B. F. Goodrich Company's Torsilastic rubber automobile spring was the 
idea of an independent inventor. But the Goodrich Company had to 

3 Census of Business, 1939, Vol. I: Retail Trade, Part I, pp. 63-64. 
4 See Chap. VIII, p. 278. 


translate the idea into a marketable product. As a matter of fact, new 
product ideas at present are rarely the product of an inventive genius 
working alone but are rather the product of organized research groups, 
working with the benefit of highly technical equipment in the labora- 
tories of large corporations. The automobile, chemical, rubber, and 
food companies, among others, have large, expertly manned research 
laboratories which work continuously on the solution of recognized 
problems. 5 From these come both the ideas and the designs for new 
products and product improvements. Smaller companies may do their 
own product research but are more likely frequently to utilize the serv- 
ices of independent research laboratories or to depend upon the tech- 
nical research activity of trade associations. 6 The inventor has come to 
be a highly skilled employee of industry to a greater extent than 
formerly. In a sense he is responsible for new product development, 
but as an employee of our individual business concerns rather than as a 
free-lance inventor. 

Thus it seems apparent that manufacturers have largely needed 
to take, and have taken, the responsibility for product planning. Ex- 
cept for rare instances, consumers are either unwilling or unable to 
determine their wants in advance and to design products to meet those 
wants. Large distributors are in a better position than consumers and, 
perhaps, even than manufacturers to determine consumer wants, but 
they are not so effective in translating known wants into acceptable 
products. Furthermore, they handle only a small portion of goods 
sold at retail. Industrial purchasers do much to influence the character- 
istics of the equipment, supplies, and assembly parts which they buy. 
But even in relation to such products the manufacturer may be entirely 
responsible for product development or may do much in co-operation 
with the buyer. Inventors either become associated with business con- 
cerns and work as part of a group or furnish nebulous ideas on which 
much more work is required before they appear in acceptable products 
for the market. 

Responsibility within the Business Enterprise. — Another aspect of 
this general topic remains to be discussed. It is the responsibility for 
product development within the individual business enterprise. It is 
one of those responsibilities which cuts across the usual departmental 

5 See National Resources Planning Board, Research — a National Resource, II ("Indus- 
trial Research/' Sec. II, No. 1, "The Development of Industrial Research in the United 
States") (Washington: U.S. Government Printing Office, 1941). 

8 Ibid., Sec. II, No. 4, "Technical Research by Trade Associations," and Sec. II, No. 2, 
"Research — a Resource to Small Companies." 


lines. Both production and sales departments have an interest in deter- 
mining the characteristics of the items which are to be produced. Sales 
executives may estimate that a product with certain characteristics will 
have a large potential sale if it can be offered at a certain price. But 
price depends in part on unit production costs, and this is the province 
of production executives. Perhaps if the product were changed in cer- 
tain particulars, the cost would be substantially less. These changes 
might or might not affect its acceptability to consumers. If suggestions 
for change were made by production people, those in the sales depart- 
ments might concur or make countersuggestions. Finally, a decision 
would be made which would, in all likelihood, be a compromise be- 
tween conflicting positions, but it would be the most reasonable one, all 
things considered. A nice balance of responsibility and authority is 
needed between sales and production departments if the decisions on 
product are to be made with the greatest wisdom. 

Companies differ markedly in their organizational framework and in 
the assignment of duties to various organizational units. In some com- 
panies the major responsibility is given to the sales department, in 
others production appears to have the upper hand. At times the plan- 
ning and development of products is under a director of research, who 
is in charge of all research activities whether on product, processes, or 
materials. Certain less technical aspects of product development, such 
as packaging and labeling, may be placed under a commercial research 
department. There are a number of instances in large concerns in which 
a new product-development department has been established. This de- 
partment has been given charge of all new products and product ideas. 
While the particular function of the department may be to take new 
products which have been designed and handle them until they have 
become established in the market, still there is much by way of experi- 
mentation and testing in certain uses which may suggest later changes. 
Thus the work which this department handles is partly selling, partly 
merchandising.j^Creation of a separate department for product develop- 
ment — one which acts in a liaison capacity between production and 
sales — appears to be excellent practice. It is work which is likely to be 
neglected unless it is centered from an organizational point of view. At 
least some means should be provided for co-ordination of technical and 
market research in relation to products. 

Chapter II 

~P RODUCT development in most instances is an exceedingly complex 
-*- activity and one which takes a variety of forms. It should be thought 
of in an inclusive sense as comprehending (1) initial development, 
(2) subsequent change to incorporate new ideas, and (3) the deter- 
mination of new uses or applications. At times a company may start 
out deliberately to design a product which will have certain character- 
istics and be capable of giving certain utilities. Such action follows a 
decision to compete for the first time in a certain field. The develop- 
ment of the Bendix Home Laundry — a washing machine of revolution- 
ary design, which washes, rinses, and damp-dries — is an example of this. 
Under other circumstances a product may be thrust upon a sales organi- 
zation as the result of technical research. For instance, calcium chloride, 
which is so extensively used on roads to control dust, was first produced 
in large quantities as a by-product of other manufacture. The problem 
as it came to the sales organization was to find a use for this by-product 
and thus provide a market. The broader problem was to give value to 
a product which would otherwise be wasted. Its use as a dust-layer was 
conceived, but the product in its original form was not adapted to that 
use. Later a method was found to convert the solid calcium chloride 
into flakes, and the planning work thus reached a successful conclusion. 
Now calcium chloride is a profitable product and is shipped in large 
quantities to all parts of the country for use on roads. 

More frequently than otherwise, product planning is concerned 
with changing products or their containers in order to incorporate new 
features. This is commonly referred to as "product improvement." Any 
change constitutes improvement if the resultant product more fully 
meets consumers' needs and desires. There are usually three activities 
involved when a firm contemplates a change in an existing product: 
first, an analysis of the product in an objective manner in order to deter- 
mine what utilities it is capable of giving; second, specialized reasearch 
directed at consumers in order to obtain facts about their needs, and 
desires in relation to the product; and, third, change or adaptation of 
the product in the light of the facts accumulated. The first of these is 
product analysis per se, the second is one type of market analysis, and 
the third is redesigning of product. As would be expected, these activi- 



ties are called for in varying degrees, depending upon the nature of 
the product, the competitive position of the company, and other perti- 
nent factors. 

Product improvement is particularly evident in products which are 
highly styled, such as women's clothing, and in products, such as radios, 
refrigerators, and automobiles, in which the habitual mode of procedure 
has been to introduce new models annually which incorporate the im- 
provements that have been decided upon during the previous year. A 
product may be made of better materials so that it will last longer, or its 
design may be changed in such manner as to attain greater consumer 
acceptance. In the food and drug lines, improvements frequently take 
the form of changes in packaging or labeling. Or changes may be 
made which constitute an improvement from the marketing point of 
view by extending the range of package sizes offered for sale or by 
extending the line through slight variations in the product to meet 
particular needs. For instance, the shampoo Drene is offered by the 
Procter and Gamble Company under one formula for people with dry 
hair and under another slightly different formula for people with 
normal hair. 

All improvements do not have to appeal to rational buying 
motives. Change for the sake of change constitutes product improve- 
ment for style goods. Products of the old designs have become obsolete 
simply through the passage of time, and thus something new, even 
though it may be of poorer design from the artistic point of view, is 
considered by purchasers an improvement over the older designs. In 
women's outer clothing, for instance, improvement in large measure 
means change in conformance with the dictates of style. Thus improve- 
ment should be thought of in terms of a more acceptable product to 
consumers rather than simply as a better product from the utilitarian 
point of view. 

The determination of new uses and applications may be considered 
a form of product development because, subsequently, new utilities can 
be offered to buyers through an established product. The product may 
or may not be changed as the outgrowth of the discovery of new uses. 
Perhaps some slight changes will be necessary, such as a wider range of 
sizes, in order to adapt it to the new use. The work of the California 
Fruit Growers' Exchange in finding new uses for citrus fruits is an 
outstanding achievement of this sort. The product itself has not been 
changed perhaps, other than in quality, but extensive markets have been 
developed by the discovery of new uses and by promotional efforts to 


popularize those uses among consumers. The production of canned 
juices constitutes a change in the product to make it more adaptable for 
use by low-income groups. 

This form of product development has particular significance in the 
industrial field. It is going on in nearly every industrial establishment 
in the country. Much of the work is done by the seller in customers' 
plants rather than in his own laboratories. The nature of the work is 
well illustrated by a comment from a ball- and roller-bearing manufac- 

We have one group which devotes its time to a study of the application of 
bearings to many types of units in industry. In fact, wherever shafts rotate new 
bearing problems are presented, and these are studied by mechanical engineers 
who, as a rule, spend much of their research time in the plants of manufacturers 
using our products. The various details of the design of the bearing mounting 
and of the lubrication and use of the bearing are studied, and recommendations 
made not only as to bearings, but as to the design of surrounding parts used 
therewith. 1 

After work such as this, the manufacturer has something additional to 
offer to buyers, and in a very real sense his line has been extended, 
whether or not changes have been made in the physical product offered. 

Extent of Product Development in Recent Years 

The extent to which new products have appeared and others have 
been improved is at least partially evident to any observant person. 
Moreover, illustrations have been, and more will be, given in this text. 
But the magnitude of the change in the products offered in the market 
during the present century needs to be stressed. Many of the products 
which we now consider almost in the class of necessities are of very 
recent origin, at least in their present form. Among these are the auto- 
mobile, the radio, electric refrigerators, and other electrical appliances. 
Changes in the form in which food gets to the final consumer have been 
outstanding. Packaging is much more common and much more effec- 
tive than formerly. In the industrial field changes in machinery and 
equipment used for productive purposes have been marked. The devel- 
opment of single-purpose machines as a more effective substitute for 
those with multiple purposes is a case in point. Synthetic raw materials, 
such as rayon, Nylon, and even glass and plastics for use in the weaving 
of textiles, have appeared. Natural rubber has been replaced for many 
uses by the synthetic product. We are undoubtedly just on the threshold 

1 National Resources Planning Board, op. cit., Sec. VI, No. 8, p. 339. 


in the use of plastics for a great variety of purposes. Some of the new 
products developed for war uses will probably be adapted to nonmili- 
tary uses. And all these changes in product are essentially the achieve- 
ment of the twentieth century. 

The effect of new product development on the output of specific 
companies may help the reader to visualize the changes which have 
recently been made. The 1937 annual report of E. I. duPont de 
Nemours and Company states that six out of twelve products which had 
been developed and placed on the market in the ten-year period prior 
to 1937 accounted for about 40 per cent of total sales in that year. 
DuPont, before the first World War, was essentially a manufacturer of 
explosives. Now the company produces dyes, lacquers, rayon, Nylon, 
Lucite, Cellophane, pigments, ammonia, and a host of other products. 
Only about 56 per cent of the dollar sales of the rubber companies were 
of tires and tubes in 1940, in contrast to 63 per cent in 1930. 2 The 
other 44 per cent was made up of transmission and conveying belts, 
fabrics, footwear (in which changes have been abundant), and such 
new products as Pliofilm, Chemigum, Foamed Latex, and molded parts 
for many uses. Mechanical goods, which accounted for only 9-5 per 
cent of the total sales in 1923, accounted for almost 21 per cent in 
1940. An executive of one of the large paper companies said: "If we 
were producing today only the papers that we manufactured ten years 
ago, we would not be running 50 per cent of the time." 3 

While the chemical, rubber, and paper industries appear to have 
been outstanding in product development, still there are very few indus- 
tries in which notable changes in product have not been made in recent 
years. The relative importance of the forms of product development is 
not easily determined, but it should be recognized that entirely new 
product ideas appear but infrequently compared to those which result 
in product change or a further adaptation in use. Du Pont's Nylon, 
Goodrich's Koroseal, and Owens-Corning's Fiberglas may be considered 
really new products, but these come along with great infrequency, even 
for large concerns with excellent research facilities. The latter two 
products were discovered when the research workers of the companies 
were seeking something quite different. The significance of inven- 

2 These and other data on rubber products were secured from the Rubber Manufac- 
turers' Association through the courtesy of one of the large tire companies. 

3 R. A. Hayward, Who Gets the KVP Dollar? (Kalamazoo, Mich.: Kalamazoo Vege- 
table Parchment Company ) . 


tion which has made possible the automobile, the radio, plastics, and 
synthetic rubber cannot easily be overstated; but these unusual depar- 
tures in product should not be allowed to obscure what might be termed 
the 'growth element" in regard to a host of long-established products 
which are constantly passing through an evolutionary process and come 
out as something quite different from the original item. This question 
of the relative importance of initial development, as over against subse- 
quent change or improvement, is well stated in a report by the National 
Research Council: 

It might be well at this point to call attention to a vague but significant 
distinction between invention, in the popular sense of a radical departure from 
previously existing products or processes, and development of new products or 
processes that grow out of older ones. Invention, in this sense, is the romantic, 
spectacular side of new product research, but, commercially speaking, it is rela- 
tively unimportant either in volume or in financial return. The really remunera- 
tive new products are usually the result of patentable or other developments just 
ahead of the crest of current practice in well-established fields. Wholly new 
ideas, particularly those which lead to new industries, are few and far between, 
and a long, hard road commonly lies between conception and commercial 

General Reasons for Product Development 

From the point of view of an individual manufacturer, the basic 
reasons for constant attention to product development are the instability 
of consumer preferences and purchasing power, on the one hand, and 
the instability of competitive position, on the other. If a manufacturer 
could be sure that consumers would want the same things in the same 
proportions year after year and that other manufacturers would not 
entice them with new or changed products, there would be much less 
reason for attention to product development than there is under pre- 
vailing conditions. But markets are not static. Rather, they are con- 
stantly shifting, partly as a result of changes in the composition of 
population and the manner in which people live and partly because of 
the effect which producers have upon the market through the pressures 
which they are able to apply. The hackneyed expression that "the only 
permanent thing is change" does apply with particular force to markets 
for manufactured goods, both consumer and industrial. In order to 
meet the changing needs of a population which is shifting both in com- 
position and regionally and to compete with other manufacturers, 

* National Resources Planning Board, op. cit., Sec. VI, No. 8, p. 338, 


attention must be given to product development if profitable operation 
is to continue in future years. Otherwise, a manufacturer may find him- 
self in the rear of a rapidly moving parade. 

Trends in the size and composition of the national population have 
a marked effect on demand. Some of these are noteworthy. Population 
is still increasing but at a decreasing rate. The increase in the 1920-29 
period was 16.1 per cent, while in the 1930-39 period it was only 7.2 
per cent. The number of families is increasing much more rapidly than 
the entire population, which means a lower average number of persons 
per family. The 1939 Census shows a 16.3 per cent increase in the 
number of families over 1929, whereas the average number of persons 
per family decreased from 4.1 to 3.8. This trend should bring about 
a greater increase in demand for those products which are distinctly 
family purchases, in contrast to those which are individual purchases. 

The average age of Americans is increasing as we approach a stable 
population level. In 1939 the average age was 29 years, compared with 
26.4 years in 1929- A continuance of this trend will mean a much 
larger proportion of our total population in the upper-age brackets, and 
a resultant need to shift production to articles which will meet the needs 
and desires of older people. For many decades there has been a contin- 
uous shift in the location of population from farms and rural areas to 
urban places. In 1900, 60 per cent of our population was rural and 40 
per cent urban. Each decade has witnessed a larger urban percentage. 
In the 1939 Census the corresponding figures were 43.5 per cent rural 
and 56.5 per cent urban. This change in the mode of living in so large 
a section of our population has profoundly affected products offered in 
the market. It is one reason for more extensive packaging and packag- 
ing in smaller containers. Products have had to be developed to meet 
the needs of large, relatively low-income groups in urban centers. A 
larger proportion of population has come to be apartment dwellers, and 
thus products in the household-equipment field have had to be adapted 
to smaller living quarters. Perhaps this long-continued trend toward 
urban centers is being reversed, for there appears to be a trend toward 
suburban living. Decentralization of industry, provoked at least in part 
by labor difficulties, was much in evidence in the latter part of the 
1930-39 decade and was probably accentuated during the war. If this 
movement continues, it will have an effect both on consumer prefer- 
ences and on purchasing power. 

There are numerous other long-range influences which are having 
a pronounced effect on demand. A much larger proportion of women 


worked outside the home during the war than formerly, and many will 
continue to do so. This shifting of occupations by women was stimu- 
lated by the first World War, and the second World War had a like 
effect. There is an active interest in health and nutrition, which is affect- 
ing the product decisions of the food companies and the producers of 
sport equipment and apparel. More people are interested in outdoor 
living and travel than there were in the first decades of the present 
century. This is in part a reflection of improved transportation and 
communication. People know of far-off places and, what is more im- 
portant, can get to them with greater ease. When great inventions, such 
as the automobile and the radio, appear, they influence product develop- 
ment in many lines. Not only is demand reduced for products which 
are associated with other forms of transportation and communication, 
such, for instances, as carriages, bicycles, and even baby carriages, but a 
host of other products have to be changed and others created to meet 
the new needs and desires of consumers whose mode of living has been 

Improved transportation and communication have likewise created 
a more homogeneous national market. Although variations in demand 
regionally because of racial, social, and climatic differences still abound, 
yet the manufacturer can develop products for a "national" market 
more than he could formerly and with greater assurance that product 
changes which will appeal to consumers in one section of the country 
will likewise appeal to consumers elsewhere. But there is a counter- 
acting factor present. With the economic development of the past few 
decades have come an increased standard of living, higher purchasing 
power, and a greater margin of purchasing power above that which is 
required for necessities. In luxury goods, including those which appeal to 
aesthetic desires, people wish more variations in product from which to 
choose. More unusual desires, which are not satisfied by highly stand- 
ardized product, can be satisfied through purchases, whereas lower-cost, 
standardized product would have to be purchased under a more circum- 
scribed mode of living. Shorter working hours and greater leisure have 
likewise brought new product problems into being. Thus, although the 
demand for product variations because of regional differences may have 
been lessened, this reduction has been more than compensated for by 
the increased demand for variations because of other factors. 

While the long-term trend of consumer purchasing power has been 
upward, the upward movement has not been continuous, as the experi- 
ence of the last decade amply proves. The level of purchasing power 


fluctuates widely over relatively short periods, and this presents addi- 
tional product problems. National income was approximately $83 
billion in 1929- 5 In 1932 it had dropped to approximately $40 billion. 
From this low point, it increased to $97 billion in 1941, the last year 
before the war, and to $161 billion in 1945. With changes such as 
these comes a pronounced change in consumer demands. Buyers become 
more price-conscious and probably act with greater intelligence in buy- 
ing when purchasing power has been restricted. Unbranded goods and 
little-known brands are likely to enjoy an increase in sales at the expense 
of the well-known national brands. This is even more likely if manu- 
facturers of the national brands do not watch the price spread between 
the two classes carefully and keep it within reasonable limits. While 
manufacturers dislike to reduce the quality of their products in response 
to a decrease in purchasing power, still something may need to be done 
by way of bringing out lower-price lines if it appears that the reduction 
in purchasing power is other than temporary. The product itself may 
not be changed, but the package may be cheapened in order to reduce 
the over-all cost to consumers. Conversely, when purchasing power in- 
creases, people demand not only more products but better products. 
While adaptation of product to shifting levels of purchasing power is 
not necessary under all circumstances, still a pronounced shift either 
upward or downward may be the cause of product changes. Although 
the foregoing discussion does not mention all the factors which have 
created, or will create, instability in consumer preferences, enough has 
been said to indicate that the manufacturer must continually be alert 
to changes which are taking place if he is to make the necessary quali- 
tative adjustments in his products. 

Now we turn to a discussion of the other basic reason for constant 
attention to product development. It is the instability of competitive 
position. If a manufacturer fails to improve his product or to bring out 
new ones in response to changed conditions of demand and other manu- 
facturers do, he is soon in difficulty, for his volume of sales, in all 
likelihood, will be reduced and his profits even more so through the 
influence of fixed costs. This is, of course, simply the normal and ex- 
pected result of forces which are allowed to have their way in a com- 
petitive economy. In such an economy the responsibility for decisions 
in regard to production is not concentrated as it theoretically would be 

5 All national income data from Statistical Abstract of the United States (Department 
of Commerce, 1946), p. 270, 


in a socialistic or communistic state. Rather, it is spread between many 
producers, all of whom presumably make independent decisions. 
Furthermore, in determining the nature of the product to be manu- 
factured, there is strong evidence that they do make independent 
decisions. If there is collusion among producers, it is more likely to 
manifest itself in pricing or in the performance of functions other than 

In a competitive economy no one producer manufactures the entire 
output of any one good, barring monopoly. Each producer is attempting 
to get consumers to prefer his product over others so that he may in- 
crease his sales volume and thereby his profits. In this attempt to gain 
consumers' favor each producer must continually strive to improve his 
product so that consumers will demand it more insistently. To the 
extent that consumers get no greater satisfaction from his particular 
product than from those of his competitors, he is never sure of any 
certain volume of business; therefore, product improvement is necessary 
as a precautionary measure, as well as to improve position. These are 
the basic reasons why the producer must give adequate attention to 
product development in an economy such as ours. If he does little in 
product development while competitors do much, he is soon bested in 
the competitive struggle. Conversely, if he does much and continues to 
offer products which are at least as acceptable to consumers as those of 
other producers, a strong competitive position is reasonably sure. 

In recent years certain manufacturers have relied more and more 
upon product development and apparently less on production econo- 
mies to keep ahead of competition. They have found that price com- 
petition under certain conditions is not fruitful, in that it begets more 
competition and all producers suffer. The advantage gained by price 
reduction is likely to be a transitory one, whereas the advantage gained 
by developing a superior product and offering it on the market may 
have more lasting qualities. In the manufacture of paper, for instance, 
the advantage gained through the development of a new type for a 
specific purpose, such as the inside wrapping for a soap bar, may last for 
from three to five years. Other manufacturers may attempt to produce 
a like paper but are likely to have technical difficulties in doing so. 
Furthermore, it might not pay other manufacturers to produce the 
paper unless they could be assured of a large outlet for it. Later the 
product may become one of heavy demand. Others may learn to pro- 
duce it satisfactorily — small concerns, for instance — and it becomes a 


highly competitive item. By that time the first producer may have other 
new types of paper to offer, which makes it unnecessary for him to 
utilize his capacity for the production of the older types in which there 
is little profit because of price competition. 

Another example is furnished by the situation in the cigarette indus- 
try. Identical prices on standard cigarettes, such as Camels, Lucky Strike, 
and Chesterfield, have been charged by producing companies for many 
years. Whether this identity in price is the result of the natural working- 
out of economic forces or whether it is the product of collusion has 
been argued in the federal courts. But during the time of this price 
identity numerous changes in the products offered have been made by 
certain companies quite independently of others, although others may 
have imitated the change later. In cigarettes the use of Cellophane for 
wrapping, changes in the mixture of tobaccos used, and changes in 
length, among others, have all been made and used extensively in 
promotional activities in an attempt to secure a larger proportion of the 
total cigarette business. Frequently the changes have been very effective 
in creating a division of total demand favorable to a given company. 
The evident intent is to rely upon product change or differentiation for 
competitive advantage rather than on price reduction. 

One further reason of a general . nature for product development 
deserves at least a brief comment. It is the desire of many business 
executives actively to promote product development so that the concern 
with which they are connected will be in the forefront of industrial 
leadership. Development of products which are markedly superior to 
those previously manufactured and sold — machines or equipment which 
will increase productivity or consumer product which will give greater 
utility — may become almost an end in itself to some executives. They 
believe in product improvement, they believe in high-quality product, 
and they are loath either to discontinue research in relation to product 
development or to lower their standards in relation to quality. While 
it is not common to ascribe motives other than mercenary ones to busi- 
nessmen, still insistence on product improvement springs in part from 
a conviction on the part of some executives that it is the way of progress. 

Specific Incentives for Product Development 

The instability of consumer preferences and purchasing power and 
the probable action of competitors are the broad incentives which 
actuate manufacturers to do something about product development. 


Even though demand appears to be stable, it is subject to change; and 
even though competition at the time appears to be ineffective, it may 
not remain so. These contingencies are ever present and thus motivate 
thinking on product problems and, perhaps, cause definite action. There 
are, however, numerous immediate incentives to action on product 
development of greater or lesser urgency. In order to examine our 
general subject more thoroughly these will merit discussion. Each of 
these incentives has as its prime objective greater effectiveness in the 
market through increasing volume of sales through the development 
of new products, new uses, more effective products, or cost reduction. 

Recognition of an Unmet Need. — If executives recognize that the 
company's products fail to give the utilities desired or expected by users 
or that there is a ready market for other products if they can be designed 
in such a manner that they will meet certain needs of potential users, 
there is a powerful incentive for action on product development. Per- 
haps there may be little comprehension at the moment of how to pro- 
ceed in the preparation of a product of the type required. Perhaps 
technology is not sufficiently advanced at the time to allow for either 
design or manufacture of such a product. But an incentive to do some- 
thing about it is present, nevertheless. If a need or desire for a product 
to give certain utilities is sufficiently strong and persistent and if it is 
recognized, the incentive is likely to be so strong that a product will 
soon be available, provided that technology is sufficiently advanced to 
provide for its designing and manufacture. 

Utilization of Excess Production Capacity. — More than any other 
single factor, the presence of excess production capacity forces attention 
on product development, particularly on the extension of the line pro- 
duced. Manufacturers fully realize the significance of the principle 
of decreasing costs. They know that if a portion of the capacity at hand 
is not used, fixed costs will have to be spread over fewer units, and unit 
costs will then be increased. Thus there is a powerful incentive some- 
how to use excess capacity, and the most usual reaction is to extend the 
line produced. It should be recognized, however, that product improve- 
ment or the determination of new uses might be equally effective in 
utilizing capacity; but, in times of stress, products new to a given com- 
pany are more frequently taken on to relieve the situation. 

Excess capacity may be present for a number of reasons. Perhaps 
there was an overestimate of the need for capacity when production 
facilities were originally created. The market for the product in mind 


or the share of the market which a concern could hope to secure was 
less than expected. Or excess capacity may be the outgrowth of seasonal 
demand for the original products. If other products could be found 
which would utilize like production facilities, but at times when they 
were not in use for the original product, overhead costs per unit of prod- 
uct could be decreased. Overcapacity likewise appears when demand 
for the original product is particularly subject to cyclical variations. The 
makers of industrial equipment, automobile accessories, and costly 
household appliances are very likely to find themselves with unused 
capacity in depression periods. The Bendix Company, originally a pro- 
ducer of automobile and airplane parts, decided to manufacture the 
Bendix Home Laundry, partly, at least, to attain more diversification 
and thereby lessen the extent of fluctuations in demand for the com- 
pany's products. Still another reason for overcapacity is a serious reduc- 
tion in demand for a company's products brought about either by the 
increasing effectiveness of competitors, perhaps through offering an 
improved product, or by a fundamental change in habits of living, 
which decreases total demand. With the increased use of automobiles, 
the demand for baby carriages and for bicycles was greatly reduced. 
With the more general use of screens on windows, the demand for 
Tanglefoot was reduced, and the company which produced it was forced 
to seek other products. Many companies are particularly active in 
product development work now, since the cancellation of orders for 
military goods has left them with excess production capacity which 
must be utilized for the production of peacetime commodities. 

Utilization of Waste Products. — An immediate incentive for prod- 
uct development comes from the presence of waste products from other 
manufacture. Waste products not only fail to increase value, but they 
may create expense, as it costs something to get rid of them. The 
packing industry has been particularly successful in utilization of waste 
products. Thus we find the packers producing glue, knife handles, 
brushes, fertilizer, medicine ingredients, soap, and many other products. 
The 1940 Annual Report of Armour & Company tells of a new drug, 
called "Cholesterol," made from the spinal cords of cattle, which in 
the past had practically no value. This product has numerous uses, a 
principal one being as a base for cosmetics. The chemical industry is 
another notable example in which materials which at one time were 
considered waste have been converted into useful products. Every gas 
or liquid which is the by-product of manufacture may be of value, and 


therefore research goes forward continuously to utilize what at the 
moment appears to be waste. 6 

Utilization of Materials for a Higher-Value Use. — Even though one 
product from joint supply may not actually be waste, still it may at the 
moment have only low-value uses and thus contribute but little to 
over-all returns. This condition furnishes an incentive to product de- 
velopment. Again examples are furnished by the packing and chemical 
industries. Spam and Prem, the packaged meat specialties, are said to 
be made in part from shoulder hams, known in the trade as "picnic 
hams," which were more or less a drug on the market and thus sold for 
low prices. Through their conversion into a specialty product, returns 
were probably increased from this part of the carcass. Often in the 
chemical industry when a product, although of some value in certain 
uses, moves slowly and nets but low returns, a company may be stimu- 
lated to find other uses for it either in its original state or re-worked 
into something else. The reason for product development in these cases 
is to increase the return from certain parts of joint-supply products. 

Competition of Competitors' New or Improved Products. — A 
strong incentive to product development may come from the action 
of competitors in placing a new, successful product on the market. 
While the protection furnished by patents, by secret formulas, or by 
processes of manufacture may prevent exact duplication, still, if the 
product appears to be a good one and one which fits into a company's 
line acceptably, there is an incentive to create something of like nature 
which will offer effective competition. After George A. Hormel and 
Company had brought out Spam, other packing companies a few years 
later brought out Prem and Treat as competitive products. All com- 
panies were motivated by the desire for higher-value returns as noted 
above, but companies other than Hormel had an additional motivation. 
A competitor had, at least temporarily, become considerably stronger 

6 Additional examples of waste utilization are given in the following quotation from 
National Resources Planning Board, op. cit., p. 230: 

"The carbon dioxide formerly wasted from fermentation operations now finds sale 
as solid carbon dioxide or dry ice for refrigeration. The City of Milwaukee for some 
years has been able so to treat its sewage as to produce a fertilizer the sale of which has 
materially lessened the cost of sewage disposal. The sugar industry finds a steady market 
for its waste molasses which is used for the growth of yeast and the production of alcohol. 
One of the great distilleries has devised a process for treating its waste, which must be 
kept out of local streams, so that the resulting feedstuff pays the overhead for the entire 
plant. Furfural, which finds extensive application in the purification of rosin and the 
manufacture of lubricating oils, to mention but two uses, is the result of waste product 
utilization, since it is derived from oat hulls." 


through the development of a new product, and, moreover, this new 
product gave them a lead which could be followed and which might 
be productive of increased profits. In this instance, product develop- 
ment was in part a. defensive action following the aggressive action of 
a competitor. 

Inability To Secure Supplies from the Usual Sources. — When supply 
sources habitually used are cut off for one reason or another, and others 
are not available, it is a question either of producing certain items or of 
going without. While this alternative is not often presented to business 
concerns, it has been at times, and, as a result, the national economic 
position has been greatly altered in important respects. For example, 
the first World War launched a chain of investigation in the chemical 
industry which has made the United States much less dependent than 
formerly on foreign sources for chemical products. The Germans had 
developed dyes and organic chemicals which were considered necessary 
for many purposes, among them for laboratory research itself. These 
had been imported, but supplies were not forthcoming in wartime. The 
manner in which the chemical industry responded to the stimulus 
given by the condition of scarcity in needed materials is a classical in- 
stance of industrial resourcefulness. Even superior dyes and other 
chemicals were produced under the urge of necessity. Many illustra- 
tions could be given from the experience of the last war. Witness the 
production of synthetic rubber and quinine, among many products. 

Practice of the Trade — New Models Periodically. — In the auto- 
mobile industry, the electric refrigeration industry, the radio industry, 
and others the practice has developed of bringing out new models an- 
nually, and all the larger concerns at least, in order to be competitive, 
must conform. In style goods, such as women's clothing, product devel- 
opment must come even more often, since the market expects variations 
in the merchandise offered seasonally. In these lines even a reasonable 
degree of stability in competitive position depends upon observance of 
the usual practices of the trade, whether these practices are self-imposed, 
as in the automobile industry, or imposed by the market, as in the 
dress industry. 

A Need for Changes in Distribution. — Attention may be focused 
on product development, particularly on expansion of a line, by the 
fact of a high sales-expense ratio. The cost of getting buyers through 
direct solicitation is largely a fixed cost. This is true in relation both to 
traveling costs and to salesmen's compensation. If the average size of 
the order secured can be increased, the unit cost of solicitation per item 


sold will decrease. Thus an incentive is present either to make the prod- 
ucts offered more acceptable to users and thereby to increase the size 
of orders or to offer more products and achieve a like result. 

If a manufacturer has been selling through wholesalers but wishes 
to sell directly to retailers, he is very likely to feel the need of a wider 
line. The expense of selling through wholesalers is a variable expense, 
whereas the expense incurred for direct solicitation does not vary pro- 
portionately with volume. Unless the manufacturer has a reasonably 
wide line over which to spread this fixed expense, the expected advan- 
tage of more effective presentation of the company's products might be 
more than offset by the increased costs of selling. More will be said 
on this question of overhead sales expense later. Here it is only neces- 
sary to point out that the possible reduction of such expense furnishes 
an incentive for product development. 

Suggestions from the Market. — Suggestions as to product change or 
as to extension of the line offered from either consumers or distributors 
may furnish an incentive for product development. Often these sug- 
gestions come entirely unsolicited, but more frequently they come as 
the result of carefully planned effort to get just such information. When 
evidence accumulates that buyers actually want certain characteristics 
in a product or that they will purchase other items along with those 
which are customarily sold to them by a company, action on product 
development is likely to be taken. 

Sources of Product Ideas 

One of the most difficult and vital things in product development 
is to find sound, worth-while ideas on which to work. A multiplicity of 
ideas come from numerous sources, but the number of really good ones 
is few indeed. Even of those which are accepted as holding some 
promise and given considerable attention, only a small percentage pass 
all the tests and find their way into a company's line. Because good 
ideas at times comes from queer sources, a company is loath to neglect 
consideration of ideas from any source. The avenues by which they 
come must be kept open, and an organization must be created to 
handle them. 

A broad source of ideas in relation to product is the appearance of 
social pressures which arise from changes in our manner of living or in 
the composition of our population. These come to the attention of 
business people either through introspection or through casual or 
planned observation. They develop an awareness of social pressures 


or social tensions and respond to them, just as poets, painters, or other 
artists do, and attempt through this response to realize the aspirations 
of their time. Inventors do likewise when acting either in an individual 
capacity or through company employment in a research laboratory. 
Then the inventor becomes the immediate source of the product idea 
for the business concern, but the real source was a recognition of social 
pressures. In this broad sense it might be said that necessity is the 
mother of invention. If the demand for faster transportation, greater 
safety, or better lighting is sufficiently strong and persistent, a changed 
product embodying greater utility or a new product is likely to be 

An illustration is furnished by the development of the I.E.S. lamp 
for home use, and, perhaps, by the development of fluorescent lighting 
for use in manufacturing establishments. As an outgrowth of wider 
education, greater dissemination of reading materials at lower cost, 
more constant use of the eyes in vocational activity, and other social 
changes, there came to be a real need for better lighting facilities in 
homes. Moreover, the need was recognized, at least hazily, by many 
people throughout the country. Individuals with poor vision — and 
there are many of them — ascribed part of their difficulties — and rightly 
— to poor lighting. Finally, through a recognition of this need by 
inventors and people in business the I.E.S. lamp, so designed that light- 
ing was materially improved, was invented and placed on the market. 
The fact of the need was attested to by the sales volume subsequently 
achieved. Changes in automotive design and accessories furnish another 
illustration. As a result of the wide use of automobiles and increased 
speed at which they travel, questions of safety have been much in the 
public consciousness. Social tensions have been created because of the 
ability given to the automobile user to encroach upon the rights of 
others in the social group. Thus there has been constant pressure for 
safety devices which has found expression in safety glass, rounded car 
interiors, and blowout-proof tires, such as Goodyear's Lifeguards and 
Goodrich's Seal-O-Matic tubes. The development of de-icers for air- 
planes by Goodrich is another case in point. 

It would not be argued that invention always follows a clearly recog- 
nized need. That it does at times seem evident. But social scientists, 
in the majority of instances, appear to have discarded the idea that 
"necessity is the mother of invention." Rather, there are certain indi- 
viduals like Watt, Edison, or Bell, who, as someone put it, "have an 
instinct for contrivance." While they undoubtedly responded to the 


times in which they lived and the needs of the population at that time, 
still it cannot be supposed that there was any profound recognition of 
need for many of the things which they invented as there was for more 
safety in the use of automobiles or airplanes. In certain instances, 
products have appeared which seem to have had little connection with 
recognized needs. They were, nevertheless, made available, and the 
public determined whether or not they were useful. Finally, they may 
have become almost indispensable. Invention, in such instances, might 
be considered the mother of necessity rather than otherwise. Thus there 
appear to be two primary sources of new product ideas: first, social 
pressures or tensions and, second, technological research which may, 
but in varying degrees, be the result of the necessities created by the 
former. With this general discussion in mind, we shall now turn to 
more specific sources of product ideas. For want of a more adequate 
classification, we will consider as sources the market, competitors, in- 
ventors, technological research within a company, associations, and, 
finally, legislation. 

The Market. — Various parts of a company's personnel — salesmen, 
servicemen, sales supervisors, and, at times executives — are in constant 
contact with the market and thus have firsthand information of buyer's 
needs, of inadequacies of both their own and competitor's products, and 
of changes in buyers' preferences. This contact is invaluable as a source 
of product ideas. For industrial equipment or for technical product of 
any sort, special investigations, often known as "trouble shooting," 
may be productive. In speaking of this, an executive of one of the large 
chemical companies said: "Of all the hopeful ways for an alert research 
organization to achieve new and immediate results, I suppose the com- 
plaints of customers about the failure of products to do the tricks for 
which they were designed afford the most obvious starting points." 7 
If, for some reason or other, difficulties are being encountered in the 
use of a company's products and an effort is made to overcome these 
difficulties, the investigators may discover that the product itself needs 
changes and, moreover, just what those changes are. Servicemen who 
survey customers' needs, demonstrate and install product, and service 
it afterward are an excellent source of new product ideas. No other 
group combines product, production, and market information more 
thoroughly. Home-office people may not be entirely cognizant of 
market needs; salesmen may not fully recognize technical problems in 

7 W. B. Bell, The Executive and the Technologist (an address before the American 
Section of the Society of Chemical Industry, February 16, 1940), p. 12. 


product construction; but servicemen are unlikely to be deficient in 
either respect. 

In certain instances the relationship between the seller and the buyer 
in reference to new products becomes a very close one. Some of the 
paper companies work closely with the large buyers of wrapping mate- 
rials — the packing companies, the soap companies, and the manufac- 
turers of breakfast cereals. The paper used must be just right both to 
preserve the quality of the merchandise and to allow for effective 
operation of packaging machinery. It is not unusual for the buyer to 
come to the paper company with a request that a paper with certain 
qualities be developed. Because of technological difficulties in the man- 
ufacture of paper it may or may not be possible to do so. In one instance 
a paper company has been working five years to develop just the type 
of paper which is wanted by one of its largest customers. The chemical 
companies invite inquiries from the field both through trade-paper 
advertising and through salesmen. Special contact men and salesmen 
are urged to say that company research facilities are at the service of 
the customer and that his problems will be taken under advisement. 
Perhaps a company already has a product which has the properties that 
will meet the requirements listed by the purchaser, but the inquiry 
may lead to the development of a new product, particularly if com- 
pany executives are convinced, after a survey, that there will be a 
substantial demand forthcoming. Obviously, the high costs of new 
product development can be incurred only if there is such evidence. 
The steel companies likewise work closely with customers, the auto- 
mobile industry, for instance. It is said that three industrial research 
groups worked together in the development of a special high-quality 
steel to be used for stamping out one-piece turret tops and fenders. 
In addition to the research groups of the automobile and steel compa- 
nies, the stamping industry had much to contribute. In each of the 
situations mentioned it should be apparent that the buying company 
had much to contribute by way of product suggestions to the seller. 
At times only the need was made known, but frequently suggestions 
were made in relation to the desired characteristics that a product itself 
should possess. 

For consumers' goods, salesmen and their supervisors may be the 
only direct contact with the market and may thus furnish the avenue 
by which distributors' suggestions get back to company executives. 
While distributors may have but few ideas for new products as such, 
still they may have definite and worth-while ideas as to the adequacy 


of the lines which their suppliers are furnishing. Suggestions are likely 
to be centered on products which are not new but are new to a certain 
company or on variations in products habitually carried, such as on new 
sizes or on packaging. While suggestions from salesmen are often 
fruitful, still they will always bear investigation to determine whether 
they are a real expression of consumers' or distributors' attitude or 
whether they constitute an alibi for failure to make sales in the expected 
volume. While all suggestions as to product need careful review before 
any appreciable expense is incurred in reference to them, those from 
salesmen may need particular attention. 

Another source of ideas in relation to product is the user who is 
contacted through merchandising research of a rather formal character. 
A concern may not wait for the user to express his opinion of a product 
but, either through questionnaires or through interviews, may ask him 
to do so. Criticisms are welcomed, and, as a result, ideas for improve- 
ment are frequently unearthed. If a product has been on the market 
for some time, present users or perhaps those who had used it in the 
past but had discontinued purchase may be questioned. At one time 
a manufacturer of paper specialties, such as ice-cream and butter con- 
tainers in use by dairy companies and soda fountains, asked the writer 
to interview about thirty lost accounts in the Detroit area. The question 
was "Why did you discontinue using the X Company's products?" 
There was almost complete unanimity in regard to one reason for the 
failure to continue purchase. It was that the company's products did 
not have certain desirable characteristics which had been incorporated, 
with comparative recency, into the products of competitors. 

Frequently, concerns make very elaborate surveys covering the 
national market in order to get an accurate view of consumer attitudes 
toward product. At times, for a new product, such information is 
secured in restricted areas so that the changes suggested may be made 
before the product is distributed nationally. All sorts of tests may be 
made in order to get information which will aid in developing a product 
that will be acceptable to the market. These will be considered in some 
detail in a subsequent chapter. 

Home-Office, Production, and Research Personnel. — Most worth- 
while ideas in relation to products are an expression of the originality 
and resourcefulness of home-office executives. They are likely to know 
the characteristics of the company's products, their shortcomings, and 
the place which they hold in competition. If they are in charge of a 
merchandising department or members of a merchandising committee, 


much of their time is allotted to work on product. In smaller concerns 
one man may be intrusted with the task of product development. With 
keen interest, a background of information, and constant attention to* 
product problems, k would be surprising indeed if home-office people 
were not productive of original and fruitful ideas on new products 
or product improvements. Those in charge of production are more 
likely to be concerned with ways in which a product might be changed 
and thereby reduce costs of manufacture than with changes which would 
increase the utility secured by consumers. Ultimately, the consumer 
might be benefited by getting a product with the same utility at lower 
cost. But the fact that people in production departments are frequently 
the source of product ideas, particularly in the industrial-equipment 
field, is attested to by many companies. 

In the larger companies technically trained people — chemists, 
physicists, metallurgists, and others — are likely to work on most product 
ideas which get by a preliminary examination on the part of top execu- 
tives or merchandising committees. If an idea such as the fortification 
of breakfast cereals with vitamins or the addition of a strawberry flavor 
to a line of gelatin desserts has the general approval of executives, the 
company research group will be asked to discover some way to accom- 
plish the desired objective. In this way the research organization is 
acting in a service capacity to company executives. The research per- 
sonnel cannot properly be considered the source of the product idea 
but rather the means by which the idea may become realized in a com- 
pany's products. This is often called "research by the project method." 

It should be recognized, however, that research begets research or, 
as it is commonly stated, that "research opens new frontiers." Thus the 
research man, although started toward the solution of a specific prob- 
lem, by the very nature of his task accumulates new ideas which may 
apply either to the product under consideration or to altogether differ- 
ent products. While we may not agree with the statement attributed 
to Dr. Mees that "the thing to do is to let the research man poke his 
inquisitive nose into some problem that fascinates him, and then follow 
it from fact to fact, no matter how far off the original track it seems to 
lead him," 8 still this statement does suggest the reason why research 
people are so often highly productive of new product ideas. While there 
would be some difference of opinion as to whether a company's research 
workers should be allowed to wander far from the consideration of 

8 J. D. Ratcliff, "Eastman Kodak's Research Odyssey," Barron's, Vol. XXI, No. 25, 
(June 23, 1941), p. 3. 


immediate company problems and get over into the realm of pure 
research, still in either situation the result of effort may be productive 
of unusual product ideas. Examples are numerous. In the attempt to 
develop something which would help in the problem of film-drying, 
an Eastman Kodak Company research man discovered one of the best 
vitamin concentrates made. 9 Fiberglas was discovered when a research 
chemist was attempting to find a way to make permanent the lettering 
on milk bottles. Because of repeated washings the lettering came off. 
He conceived the idea of stenciling bottles by spraying colored, molten 
glass on them. If the glass had adhered to the bottle, the lettering would 
have been as permanent as the bottle itself. But the molten glass did 
not adhere; instead, it produced a mass of very fine fibers when it 
hit the hard surface of the bottle. Now this fiber is used for many pur- 
poses, among them for filters, insulation, and for the weaving of textiles. 
The B. F. Goodrich Company's plastic, Koroseal, was discovered when 
research workers were attempting to find a substitute for gutta-percha 
for use in the manufacture of golf balls. 

These examples illustrate the fact that new product ideas are often 
a by-product of technical research work. It might be contended that 
the ideas originate in the minds of research personnel or that the dis- 
covery of products is at times almost accidental. The latter interpreta- 
tion would find few adherents among the workers themselves. They 
would be likely to insist that, when highly trained people work with 
all the equipment available to solve technical problems in a certain 
field and then discover something new and recognize its importance, 
such discovery is anything but accidental. 

Inventors. — Most product ideas come to business concerns entirely 
unsolicited, but now and then a concern will advertise for ideas and 
perhaps offer a substantial award if good ideas are presented. Hyatt's 
experiments with nitrocellulose through which celluloid, the first of the 
modern plastics, was developed around 1870 were motivated by an 
offer of $10,000 made by Phelan and Collander of New York for a 
substance that could be used as a substitute for ivory in billiard balls. 10 
Armour and Company recently advertised that an award would be given 
for product ideas if they met certain stipulations, but no awards were 
made and finally the offer was withdrawn. In such instances a company 
probably has a dual objective in mind. The offer has advertising value 

9 ibid. 

10 National Resources Planning Board, op. cit., p. 29. 


and may be productive of ideas. While solicitation of this sort is not 
uncommon, still it accounts for only a minute part of the flood of ideas 
which are offered to business concerns by free-lance inventors. 

Although inventors besiege large corporations with product ideas 
which they hope will appeal to executives and result in purchase, only 
now and then are ideas really productive which come to business con- 
cerns in this manner. As one executive put it: "There isn't a really 
good idea in a carload." Moreover, inventors usually have exaggerated 
ideas in regard to the value of their discoveries. Not infrequently busi- 
ness concerns have discarded ideas for products which inventors have 
later forwarded as unusual or even revolutionary. This is suggested 
by the following extract from an idea submittal form used by General 
Foods Corporation: 

It is the experience of the Corporation that most of the ideas for the promo- 
tion and packaging of its products and for new products, suggested by those 
outside the organization, involve nothing essentially new. Often the same or a 
similar idea is suggested by many different people. Frequently the suggestion 
includes features already used by the Corporation or by others. The practical 
difficulty of determining the original author of any idea and the resulting possi- 
bility of misunderstanding make it necessary for the Corporation to entertain 
suggestions only when they are explained or outlined on this form and in 
accordance with the signed understanding printed hereon. 

The inventor's idea, although a valuable one, may be in such a 
nebulous state that a vast amount of work must be done and expense 
incurred before it actually becomes incorporated into a product ready 
for introduction on the market. If, then, the final product is the joint 
effort of the inventor and the company, the problem arises of evaluating 
the contribution of each. The contribution of. the company might be 
greater than that of the inventor, but the latter might not easily be 
convinced of that fact. To avoid dissatisfaction and the possibility of 
subsequent legal action, business concerns often purchase inventor's 
ideas outright; but, if for some reason the idea has less value than was 
expected, the capital investment may be in part wasted. 

Difficulties encountered in dealing with inventors have led some 
companies to close this avenue of ideas entirely. At least, if ideas are 
welcomed, the companies accept them under their own terms; and large 
companies rigidly adhere to such terms. When we consider the fact 
that there are so few really good ideas presented, the likelihood of mis- 
understandings, and the possibility of legal action brought by an in- 
ventor against a company, it is no wonder that business concerns shy 
away from outside sources of new ideas. In order to lessen the potential 


difficulties many concerns ask inventors, prior to any discussion of the 
idea itself, first, whether the idea has already been given legal pro- 
tection through patent or copyright and, if not, whether they are will- 
ing to sign a form, the purpose of which is to protect the company 
against future litigation. 11 Unless this form is signed and the inventor 
submits his proposal in writing, no further negotiation is carried on. 
The following is another paragraph in the form used by General Foods 

I wish to present for your consideration the idea, device, or product described 
below. I submit this suggestion with the understanding, which is conclusively 
evidenced by my use and transmittal to you of this form, that the use to be made 
of this suggestion by you and the compensation to be paid therefor, if any, if you 
use it, are matters resting solely in your discretion. This understanding applies 
also to use, if any, that may be made of this suggestion by any of your subsidiary 
or affiliated companies. Further, this understanding applies also to any supple- 
mentary material submitted with this suggestion. I have described such supple- 
mentary material below, and have referred to it as Exhibit A, B, C, etc. 

While the protection actually given by the use of this form is a 
matter of legal interpretation, still we can safely assume that excellent 
legal talent was used in its formation. Moreover, this form has been 
used in many thousands of cases. In some the legal protection which it 
affords has undoubtedly been tested, and thus the Corporation knows it 
will accomplish the purpose intended. Otherwise the form would have 
been changed. It might be argued that the inventor, in effect, signs 
away all rights and thus places himself at the mercy of the Corporation. 
This is likewise a matter of the legal interpretation of the instrument. 
But the desire of large corporations to deal unfairly with those who 
present ideas would seriously be questioned. Not only would execu- 
tives be swayed by consideration of equity, but the possible effect on 
public relations would likewise act as a deterring factor. Actually, a 
free-lance inventor can expect little more initially than serious consid- 
eration of his product ideas by a reputable concern which has the spe- 
cialized personnel and the financial abilities necessary to utilize an idea 
for mutual advantage. 

Other Companies. — The right to product ideas or processes has 
frequently been acquired by outright purchase from other companies 
or by financial action which brings about merger. E. I. duPont de 
Nemours and Company purchased patents on rayon and Cellophane, 

u For a general discussion of the forms used by companies for this purpose and for 
many actual examples likewise see "Policies of 100 Corporations in Considering Ideas 
from Outside," Sales Management, Vol. XL VI, No. 2 (January 15, 1940), p. 18. 


and got into the plastics field by purchase of the Arlington Company 
and the Viscoloid Company. 12 In the duPont Company's Annual Report 
of 1937 the following statement appears: 

In addition to the patents secured upon the results of its own efforts, it has 
been the company's practice to acquire, where practicable, patents or licenses 
under patents belonging to others which have an important bearing on its 
present or prospective manufacturing activities. Although requiring the expen- 
diture of considerable sums of money, experience has shown this to be a wise 
and profitable policy. Conversely, your company has shown a general willingness 
to grant to others, licenses to operate under its own patents on payment of 
appropriate royalties. In many instances such grants have been made to com- 
petitive manufacturers; for example, licenses under your company's "Duco" 
lacquer patents have been granted to approximately 240 competitive manu- 

In effect, purchase of a company is simply an alternative to other 
means of acquiring product ideas and, perhaps, a less costly one. 
Larger companies may find smaller ones which have products in various 
stages of development but which do not have sufficient financial re- 
sources to do the remaining development work or the sales organization 
to provide for market expansion. Under such conditions there may be 
mutual advantage in sale or merger. While the acquisition of product 
ideas in this way seems to be particularly characteristic of the chemical 
industry, still the history of any large corporation is likely to furnish 

Competitors. — The proportion of all companies in many industries 
which do a substantial amount of creative designing is comparatively 
small. There are some which manufacture only products that are 
well standardized throughout an industry. There are others which defi- 
nitely lead by carrying on designing work continuously, while there are 
still others which "follow the leader" and thus get most of their product 
ideas at second hand. In other words, they copy to a greater or lesser 
degree the designs created and placed on the market by other concerns. 
As a rule, it is a simple matter for an imitator to secure original designs. 
They can be seen at exhibits, in retail or wholesale outlets, and in ad- 
vertising, or knowledge of them can be obtained by surreptitious means. 
A salesman may become keenly aware of the characteristics of competing 
lines and suggest that a product with like characteristics be manufac- 
tured. Designers may sell the same design to more than one company, 
each producing in different price ranges. Securing product ideas from 
competitors is, therefore, a very usual source for numerous concerns, 

12 "duPont II : A Management and Its Philosophy," Fortune, Vol. X, No. 6, pp. 86 ff. 


especially the smaller ones in those industries in which decorative de- 
signs are of particular importance, such, for instance, as in the textile, 
clothing, leather goods, furniture, and glassware industries. 

Problem of Design Piracy 

The use of competitors' products as a source of product ideas brings 
to the fore the question of legal rights in original designs and whether 
copying is therefore permissible under the law. The copying of other 
manufacturers' products has come to be known as "design piracy." This 
term suggests that there is both an ethical and a legal question involved 
in such copying. While these questions will not be debated here at 
length, some comments are necessary to show to what extent this 
source of product ideas can be utilized. The field of designing evidently 
includes roughly three classes, those of structural, pictorial, and deco- 
rative designs. Structural designs may be protected through patents and 
pictorial designs through copyrights. At times decorative designs may 
likewise be patented if the design meets the requisite tests of inventive- 
ness or originality, but the time and expense necessary to secure a 
patent may be prohibitive. In general, manufacturers of such products 
as textiles, clothing, and furniture have difficulty in protecting their 
designs and have attempted through proposed legislation and through 
trade-association effort to curb the practice of copying, but apparently 
with little success. Under the common law a company is permitted to 
copy any unregistered design — one neither patented nor copyrighted — 
even minutely. However, in the subsequent sale of a product the manu- 
facturer must not represent himself as the originator of the design or be 
guilty of acts intended to mislead the buying public as to the source 
or origin of the article. 13 Thus it is evident that concerns which copy the 
products of others may be acting within their full legal rights. Nor is 
copying a reprehensible practice or one which is valueless to the orig- 
inator of new styles or models. Copying, in all probability, stimulates 
new product development. Copying merchandise for sale in lower-price 
brackets creates obsolescence and thus a market for new styles which 

w "The well-established rule with respect to functional elements is that where an 
article of manufacture is not protected by a patent anyone is at liberty to copy the form in 
all its essential features. In such case he cannot be charged with unfair competition merely 
because his product resembles that of another manufacturer. The adoption of the particular 
form may be justified by its usefulness as to strength, efficiency, durability or cheapness. 
The only limitation is that this right shall not be exercised so as to deceive the public 
about the origin of the goods. Where other distracting features cannot be put upon the 
article, as a rule, attaching the name of the manufacturer will suffice." Rudolph Callmann, 
"Style and Design Piracy," Journal of the Patent Office Society, Vol. XXII, No. 8 (Au- 
gust, 1940), p. 561. 


will be distinctive and thus appeal to those individuals with high 
purchasing power. 

Procedure in Product Development 

The various steps which are taken in the work of product develop- 
ment are largely for the purpose of culling out those product ideas 
which, for one reason or another, will not result in acceptable additions 
to a company's line. The sources of product ideas, as previously stated, 
are many, and they are highly productive. A very small proportion of 
these ideas, however — perhaps 1 or 2 per cent — are found to have merit 
after they are investigated and evaluated by company research groups 
and by key executives. To this process of investigation and evaluation 
in large concerns many people lend their particular talents and the 
fruit of their accumulated experience. 

It is doubtful whether there can be established any clear-cut proce- 
dural pattern which can invariably be used for new product develop- 
ment. At least there should be no rigidity in the application of a pat- 
tern, as product ideas differ too markedly in their need for research 
activity. Some products take many years to develop to a stage where 
they are satisfactory for introduction in the market. Other product 
ideas, particularly those involving change in existing products, may in- 
volve little research work and be accepted in a few weeks or months. 
While a large number of steps in the developmental procedure might 
be listed, they appear to fall into a few broad categories as follows: 

Preliminary Evaluation of a Product Idea by a Special Committee 
or a Key Executive. — There are so many product ideas without merit 
that some simple preliminary evaluation is needed. In one of the large 
food companies this preliminary work is done either by the vice-presi- 
dent in charge of sales and advertising or by the vice-president in charge 
of research and development. In the American Cyanamid Company 
new product ideas are referred to a New Projects Committee, which de- 
cides whether the idea should be discarded or investigated further. 11 

Formal Investigation by a Technical Research Group. — Those prod- 
uct ideas which are considered to have real merit are submitted, usually 
in project form, to a research advisory committee or some such group 
for more extensive investigation. This group is expected to submit proj- 
ect reports periodically, as top management wishes to keep fully in 
touch with product research. Time and cost limitations may likewise 
be imposed as control devices. In one instance, after spending 75 hours 

"Bell, op. cit., p. 25. 


on any product idea, the research group must have its work reviewed 
and secure approval for additional expenditures. 

Study To Determine whether There Is Any Legal Interference with 
Existing Patents or Copyrights, or tvhether the Product Conforms with 
the Provisions of Regulatory Legislation. — At this stage and before 
additional expense is incurred, it is necessary to determine whether other 
concerns hold patents or copyrights which would be infringed by pro- 
duction and sale of the product under investigation. There may like- 
wise be some question as to whether a product with the characteristics 
contemplated will meet certain mandatory standards or be acceptable 
under the provisions of legislation, such as the Food, Drug, and Cos- 
metic Act. 

Perfection of the Product in Engineering Shops or in Research 
Laboratories. — Prior to this stage a company must have reasonable as- 
surances both of the merit of the product and of the company's legal 
right to place the product on the market. This step involves product 
development as such, that is, the technical work necessary, largely of 
an experimental character, to create a product which may be acceptable 
to the market. 

Study of Manufacturing Methods and Costs for the Product. — Be- 
fore product development is carried further, it is necessary to consider 
methods of manufacture and manufacturing costs. This frequently in- 
volves the use of pilot plants. Difficulties in production may make nec- 
essary changes in product design or even changes in its component raw 
materials. In a very real sense, a product is never fully developed until 
it can be produced successfully and at reasonable cost. 

Market Testing of the Product through Submitting It to Consumer 
Juries or to Particular Customers. — This is called at times the stage of 
"customer evaluation." It is the stage at which consumer groups or 
potential customers are invited to express their opinions about the new 
product and, frequently, whether the new product is more or less ac- 
ceptable than competing products. One manufacturer called this a 
"painful process" and thereby implied that the results of market test- 
ing frequently brought certain facts to light which cast doubt on wheth- 
er the product had, in fact, been perfected and would thus give expected 
utilities to consumers. Market testing may, obviously, make necessary 
further changes in the product before it is introduced into the market. 

Introduction of the Product into the Market. — After preliminary 
testing the product may be introduced into limited sectors of the market 
for the purpose of further check on consumer's attitude toward it before 


introduction into all parts of the national market. This usually involves 
no substantial delay, for a company is not able to serve the entire nation- 
al market initially. Successful test marketing furnishes the final assur- 
ance needed that a product will be successful prior to full-scale develop- 
ment of production and marketing facilities. 

Timing of New Product Introduction 

The timing of introduction of new models in some instances is dic- 
tated by industry practice. For instance, in the automobile industry 
prior to the war new models were introduced by all the large concerns 
in the late fall months. Most new models were introduced at the auto- 
mobile shows around the turn of the year, but certain concerns, nota- 
bly Buick, frequently introduced models in August. In the clothing 
trades new models are introduced seasonally to take advantage of con- 
sumer purchasing dictated by seasonal changes in weather conditions. 
In regard to packaging and labeling, changes are likely to be made 
whenever needed or when required by legal decisions based on legisla- 
tion, such as the Food, Drug, and Cosmetic Act. Timing the introduc- 
tion of new brands, packages, and labels will be considered in a subse- 
quent chapter. 

Timing introduction of new products per se raises numerous and 
difficult problems for management. New products may be introduced 
when the effect of such introduction will most contribute to the allevia- 
tion of seasonal or cyclical fluctuations in the volume of business. The 
desire for elimination of seasonal variations in demand may have a 
pronounced bearing on the nature of new products selected for inclu- 
sion in a line. However, it is doubtful whether it would be wise in the 
majority of instances to withhold product introductions -in order to 
attain seasonal stability in sales in the first year. A certain volume of 
sales would thereby be lost. Also a company would take the risk of 
competitive disadvantage through the possibility of more prompt action 
in introduction by other concerns with competing products of a similar 

This reasoning probably applies with equal cogency to withholding 
new products to attain cyclical stability in sales. A manufacturer of 
paper specialties at one time had a definite policy of developing new 
products and holding them until a downward trend in business indicated 
that a depression was in prospect. New products were then released 
in the hope that their sales volume would stabilize output and thus pre- 
vent the unfortunate effects of declining sales in a decreasing-cost indus- 


try. In later years this same concern abandoned this policy, although 
it was recognized that the policy had some logical justification. It was 
stated by the company's management that competition was so strong, 
even in times of prosperity, that new products were introduced whenever 
they were ready for the market. In a highly competitive situation, a 
manufacturer is taking considerable chance if he withholds new prod- 
ucts from the market. Competitors may be working along much the 
same lines in product development, and the first concern to put a new 
product on the market may have a considerable advantage. There have 
been instances in which new products have been introduced in order 
to attain the position of "first on the market" even before there was 
complete assurance that they were technically sound and would thus 
give the expected utility. The advantage gained through initial intro- 
duction may be sufficient to justify higher service and warranty costs 
incurred because of technical imperfection of the product at the time 
of sale. 

Products may be withheld from the market for numerous reasons 
in addition to those of a technical character, for instance, the degree of 
obsolescence which a new product will create in old products, the 
effect which introduction will have on a company's capital commitment 
in fixed assets, and on whether there is sufficient immediate receptivity 
in the market to justify introduction. It may be desirable that obso- 
lescence of durable goods in the hands of producers be brought about 
gradually rather than abruptly, for sudden obsolescence might produce 
disruption of economic activity and thereby unemployment. If a new 
product pre-empted the market for one previously produced and there- 
by made obsolete a large quantity of productive equipment, introduction 
of the new product might be deferred until the equipment would nor- 
mally need replacement. Furthermore, there is always the question as 
to whether the market is ready for a new product, that is, whether 
introduction might not be more succeessful at a later date. In summary, 
new products may be withheld from the market for either technical, 
financial, or marketing reasons. 

It is frequently stated that new products have been withhheld from 
the market for purposes involving restraint of trade. Collusion among 
concerns interested in new development might result in a joint decision 
to withhold a product from the market. New products might be with- 
held likewise through the suppression of a patent which gives the holder 
the exclusive right for a term of seventeen years to prevent others from 
making, using, or selling the invention covered by it, and thus the right 


to suppress his patent if he so desires, even though suppression may not 
be in the public interest. In the Hearings before the Temporary Na- 
tional Economic Committee, Investigation of Concentration of Economic 
Power, Part III on patents, it was implied by the examiners that patents 
were frequently suppressed and that this might arrest the progress of 
the industrial arts. Television was specifically mentioned. Both scien- 
tists and businessmen, among them Mr. Vannevar Bush and Mr. George 
Baekeland, 15 strongly asserted that, in their opinion, there was little, if 
any, suppression of patents and that competition would probably force 
introduction of a new product in the market when the difficult and 
time-consuming step between the acquisition of a patent and the devel- 
opment of a marketable product had been taken successfully, and the 
market was ready for the product. 16 

15 Mr. Vannevar Bush was then President of the Carnegie Institution of Washington. 
During the war he was Director of the Office of Scientific Research and Development. 
Mr. George Baekeland was Vice-President and Secretary of the Bakelite Corporation and 
President of two of its subsidiaries. 

16 Investigation of Concentration of Economic Power: Hearings before the Temporary 
National Economic Committee, Part III (Washington: U.S. Government Printing Office, 
1939), pp. 885 and 1103: 

"MR. FRANK: But supposing that a corporation owned a patent and there was some 
other invention, some new device, which would be far better in the public interest, and it 
patented that new device and sterilized it for the full period of 17 years. Do you think 
that that is in line with the constitutional purpose or the constitutional power pursuant 
to which Congress enacts the patent laws? 

"DR. Bush: Commissioner, in 20 years I never have seen what I considered a bona 
fide case of suppression of that type. I have never seen a suppressed patent in that sense, 
and I think the reason is this. It is altogether too dangerous a procedure. 

"Let's take the example of the vacuum tank on the automobile. The patents on that 
system were pretty much held by one company which controlled the system of transferring 
gasoline from the tank to the engine by a vacuum device, and they had a group of patents 
which controlled that whole affair. 

"Whether or not they put out into the hands of the public the best form of that I 
can't say, but certainly they had an incentive to put out the best form of it. Moreover, 
they were vulnerable. One would have said offhand that they had the entire situation in 
their hands, but what occurred? Along came the motor gasoline pump and the vacuum 
tank became obsolete. 

"Every company is in the position, even if it has control of a particular device, that 
some individual outside may come on with a new and novel idea which will render their 
whole affair obsolete. The more complex their situation in some ways, the greater the 
danger, and they have therefore the greatest incentive to make the best device that they 
possibly can in view of the things that are in their hands, and my own experience and my 
own judgment is that there are no suppressed patents in that sense and that it would be 
very foolish for industrial concerns to have suppressed patents in that sense." 

"Mr. DlENNER: I have one more question. Do you know of any patent which is 
being suppressed? 

"MR. BAEKELAND: No; I don't, Mr. Dienner. I don't know of one. ... I can't 
conceive of a patent being suppressed. I don't know why anyone should suppress a patent 
when he could use it." 


The most probable reason for the belief that patents have been sup- 
pressed is a lack of appreciation of the time needed to go through this 
developmental procedure. It may take many years or even much longer 
than the life of the patent if the inventor is well ahead of the times. 
Furthermore, there are frequently many unpredictable obstacles to 
overcome, such as patent litigation. While the patent right may pos- 
sibly be misused for purposes of suppression of new product ideas, its 
essential purposes are to stimulate invention and to allow for protection 
while the necessary technical work to develop marketable products 
from the patent is being accomplished and while provision is being 
made for the necessary manufacturing facilities. 


Bell, W. B., President, American Cyanamid Company. The Executive and the 
Technologist (An address before the American Section of the Society of 
Chemical Industry, February 16, 1940). 

Callmann, Rudolph. "Style and Design Piracy," Journal of the Patent Office 
Society, Vol. XXII, No. 8 (August, 1940), pp. 557-86. 

Craig, David R., and Gabler, Werner K. "The Competitive Struggle for Market 
Control," Annals of the American Academy of Political and Social Science, 
Vol. CCIX, (May, 1940), pp. 84-107. 

Cunningham, Ross M. "Locating and Appraising Product Ideas," Journal of 
Marketing, Vol. VII, No. 1 (July, 1942), p. 41. 

"duPont II: A Management and Its Philosophy," Fortune, Vol. X, No. 6, p. 86. 

Frey, Albert Wesley. Manufacturers' Product, Package and Price Policies, chaps, 
i, vii, ix, x. New York: Ronald Press Co., 1940. 

The B. F. Goodrich Company. Typical Examples of B. F. Goodrich Develop- 
ment in Rubber, Akron, Ohio, 1944. 

Investigation of Concentration of Economic Power: Hearings before the Tem- 
porary National Economic Committee; Part II: Patents, Automobile Indus- 
try, Glass Container Industry; Part III: Patents, Proposals for Changes in 
Law and Procedure. Washington: U.S. Government Printing Office, 1939. 

Investigation of Concentration of Economic Power: Hearings before the Tem- 
porary National Economic Committee; Part XXX: Technology and Concen- 
tration of Economic Power, statement of Mr. Charles F. Kettering, pp. 
16292-317. Washington: U.S. Government Printing Office, 1940. 

Moore, C. W. "The Integration of Merchandising and Selling in Marketing 
Industrial Equipment," Harvard Business Review, Vol. XV, No. 4 (summer, 
1937), p. 497. 

Nash, Ben. "Product Development," Journal of Marketing, Vol. I, No. 3 (Janu- 
ary, 1937), p. 254. 

National Resources Planning Board. Research — a National Resource, II. "Indus- 
trial Research, Report of the National Research Council to the National 
Resources Planning Board." Washington: U.S. Government Printing Office, 


National Resources Committee. Technological Trends and National Policy. 
"Report of the Subcommittee on Technology to the National Resources 
Committee." Washington: U.S. Government Printing Office, 1937. 

New Horizons of Industry through Research. New York: General Motors Cor- 
poration, Department of Public Relations, 1939. 

"Policies of 100 Corporations in Considering Ideas from Outsiders," Sales Man- 
agement, Vol. XLVI, No. 2 (January 15, 1940), p. 18. 

Ratcliff, J. D. "Eastman Kodak's Research Odyssey," Barron's, Vol. XXI, No. 25 
(June 23, 1941), p. 3. 

Tosdal, Harry R. "The Study of Consumer Demand in Relation to Capitalistic 
Society," in Malcolm P. McNair and Howard T. Lewis (eds.), Business and 
Modern Society, p. 313. Cambridge: Harvard University Press, 1938. 

Waters, Lewis W: "General Foods Corporation, Industrial Research in Your 
Own Business," Dun's Review, Vol. XL VII, No. 2149 (September, 1940), 
p. 5. 

Chapter III 

THE general problem of product development for going concerns 
is usually of a dual character. There are many questions of policy 
and procedure in relation to the development of each individual prod- 
uct. Avenues must be opened for the acquisition of new product ideas, 
and facilities must be provided for technical work in relation to design- 
ing and testing. Many of these questions were considered in the pre- 
ceding chapter. There are other problems, however, which pertain 
not solely to an individual product but rather to the interrelationship 
between items in a group. Planning for individual products should 
be done within the framework of a broader policy concerning the struc- 
ture of the line as a whole. If a company manufactures more than a 
single product or contemplates doing so, decisions on individual prod- 
ucts must be conditioned by a company's general policy concerning 
the constitution of its line of goods. 


It is apparent that a major policy problem for every business 
organization is to determine what it shall produce and sell. When an 
enterprise is launched, it is usually for the production and sale of some 
one product or a group of closely related products in which the busi- 
nessman believes there is an unusual opportunity. He may feel that 
he has a product of merit for which there is a new or relatively unex- 
ploited market or that he can secure a competitive advantage in pro- 
duction or marketing over those concerns within the field. Or perhaps 
he starts his business for no good reason at all except that others are 
in the field and making satisfactory profits. 

Very soon after a company is established as the producer of one 
commodity, there arises the question of adding new varieties of this 
commodity or, perhaps, new products. Thus the problem of the proper 
constitution of a line emerges. Moreover, it is a constantly recurring 
problem, for experience has indicated that a line of products, unless 
governed by definite policy, will grow like Topsy. Idle capacity, sug- 
gestions of customers and salesmen, new product developments, and 
other factors may each serve as a stimulus to broaden a line. It is, 



therefore, important that each suggestion for expansion of a line be 
reviewed in the light of an over-all policy. Moreover, it should be 
recognized that a line frequently needs a downward revision or sim- 
plification, as demands often shift rapidly and certain products, once 
profitable, may no longer be desired in sufficient volume to justify 
retention in a line. 

Few concerns handle but one product; and fewer still but one 
model, size, or variety within a given product class. Association of 
many products in manufacture and sale is the rule rather than the 
exception. In fact, the wide diversity in the lines of goods handled or 
planned by present-day concerns apparently justifies the assertion that 
there is little rhyme or reason in the product structures of many manu- 
facturers. A cursory glance at the history of many companies suggests 
that the growth of a line of goods manufactured or marketed has often 
been both prolific and irrational. 1 Even more puzzling than the sheer 
number of products handled is the apparent lack of pattern in the 
product lines of many manufacturers, even of those engaged essentially 
in the same field of activity. Some firms offer many products, while 
others specialize in one; some carry the group of products commonly 
associated in their fields of economic activities, while others combine a 
number of products which appear to be completely unrelated. 

This rather chaotic product structure reflects two contradictory 

1 "Post- Victory planning is prodding many companies to experiment with new products 
and to explore the possibilities of invading new fields. This trend has taken on some of 
the aspects of a gold rush. And, as in every gold rush in history, some companies will reap 
highly worthwhile rewards while many others will : (1) Dissipate their assets, (2) Curtail 
their earning power, (3) Jeopardize their trade position, and (4) Fail in their efforts to 
provide permanent re-employment opportunities for labor released from war duties. In a 
recent talk before members of the American Management Association, Arthur Hirose 
suggested that we should vaccinate ourselves "against the most insidious new-product dis- 
ease I know; the greener pastures disease.' From across the fence conditions in the other 
fellow's industry may seem bountiful indeed. Yet NIELSEN INDEX records show a far 
higher percentage of failures than of successes where companies, established in one field, 
have invaded a non-related field. Even in closely related fields, (i.e., tooth paste to tooth 
powder, hair tonic to shampoo, all-purpose flour to special-purpose flour, etc.) the number 
of outstanding successful invasions appearing on our records has been quite small. Reasons 
for this general inability of an established company to cross a fence successfully are as 
diverse as human judgment. But, in general, they boil down as follows: (A) Failure to 
gauge competitive conditions exhaustively and accurately (via research), (B) Failure to 
appraise properly the power of the originator's advantage. When a manufacturer pioneers 
a particular field he builds a position of leadership and a consumer and trade acceptance. 
To dislodge him from his position is usually a costly, difficult, long-term risk. NIELSEN 
INDEX records suggest that in general it is better to pioneer a new product of improved 
or different characteristics than to imitate a successful competitor" (Advances in Scientific 
Market Research [Chicago: A. C. Nielsen Co., 1944], pp. 22-23). 


tendencies which have accompanied the growth of industry: extreme 
product specialization and wide product diversification. However, the 
wide diversity in product structure cannot be explained solely in terms 
of the advantages of specialization versus the advantages of diversifi- 
cation. All too often this diversity simply reflects the absence of a 
definite policy concerning the constitution of the line of goods. Some 
firms continually add and drop products. While this is most desirable 
in certain instances, e.g., firms handling high-style or novelty products, 
it often reflects a trial-and-error approach to the problem of product 
structure. Other firms apparently believe that they should handle 
whatever products are (or come to be) commonly handled by their 
own particular type of firm. There is some logic in this approach, 
but in too many cases this policy becomes one of conforming to the 
pattern or of simply "standing ready to match the line of one's com- 
petitors." Other firms choose a product and stick with it. Sometimes 
the advantages of specialization offer a particularly sound basis for a 
single-product line, but often a decision for a single product is best 
explained by simple inertia in product development. And, finally, a 
few concerns seem to adopt any and all products which promise to be 
profitable or which offer some contribution to overhead costs. While it 
would not be suggested that potential profits are unimportant in busi- 
ness decisions, still profitability is often used as a convenient explana- 
tion for opportunism in product selection or for the absence of an 
established product policy. 

It should be recognized in the formulation of product policy that 
there is a reasonable or rational line of goods for any particular firm and 
that there are certain considerations, common to all firms, which con- 
stitute the proper basis for product decisions. There is, of course, no 
one best product combination for companies in general or, for that 
matter, for companies in a particular field. Product lines cannot be 
completely standardized, nor should the line of goods handled be 
inflexible. Individual circumstances differ, and conditions change. 
The manufacturer must continually review and, perhaps, revise his 
line if conditions of manufacture or marketing dictate such action. 
While it is apparent that product policy varies with the individual 
firm, it is equally apparent that there are many problems common to 
all concerns, that the analysis necessary in the solution of these prob- 
lems follows along the same general lines, and that each concern 
needs a clearly formulated policy. 



There are two basic variables in the constitution of a line of goods. 
The first of these is the number of varieties handled in an individual 
product. Variations in a particular product may be of two types, 
namely, those which make a product more acceptable to consumers, 
although the product itself remains basically the same and furnishes 
the same utility, and those which are necessary if a product is to give 
the expected utility. The product structures of individual concerns differ 
markedly as to variations of the first type. Thus, typically, management 
must decide upon the different sizes, models, colors, and other variations 
in a particular product. A suit manufacturer, for instance, faces the 
problem of determining the number of sizes to cut of a model. The auto- 
mobile manufacturer must decide as to variations in models, colors, 
upholstery, accessories, etc. Dentifrice manufacturers may offer their 
product as a paste, powder, or liquid. Problems concerning variations 
of this type are common to a host of different industries. Finally, a 
manufacturer may offer his products in one or more price-quality levels. 
For example, Packard Motor Car Company decided to offer, in addition 
to its regular models, the Packard 120 and the Packard 6. Most of the 
fountain-pen manufacturers offer a wide range of models in different 
price levels. 

Variations of the second type are more necessary, for without them 
a product cannot give the expected utility. For instance, differences 
in the color of a particular model of an automobile has little to do 
with the utility offered. In contrast, differences in such a product as 
wrenches or saws are significant to the artisan and at times to the lay- 
man. It is a question as to whether substitution is possible without 
materially affecting the utility which a product gives. A buck saw 
obviously cannot be effectively substituted for a hand saw or a keyhole 
saw. They are, in fact, different products although they bear the same 

The second basic variable in product structure is simply the num- 
ber of different products or product classes included in the line. It is 
not unusual for manufacturers to handle products different in type but 
readily associated by customers. Thus Cluett, Peabody & Company, 
Incorporated, handles shirts, ties, handkerchiefs, and collars. In such 
product combinations there may be a valuable carryover of customer 
good will from one product to another. However, many manufacturers 
combine products of distinctly different and unrelated classes. General 


Mills, Inc., recently introduced a line of electric appliances and has 
also invaded the precision-tool field. Aviation companies have 
also produced and sold farm equipment, while other companies com- 
bine the manufacture of aviation equipment with home appliances. 
In short, product structures vary, in that some manufacturers combine 
products commonly related whereas others combine products which 
are in distinctly unrelated fields. 


Expansion of Variety in a Particular Product 

The Market Demand for Variety. — In a search for volume the 
manufacturer may rely upon the market demand for variety, i.e., the 
consumers' desire for a wide choice among different items which are 
capable of satisfying particular wants. The market demand reflects, 
first of all, the consumer demand for variety for the sake of variety, 
as in the case of products such as wearing apparel. When the con- 
sumer uses several units of the same product, he may reasonably desire 
each to be different. Men wish to own several different ties or suits, 
and, certainly, each dress in a lady's wardrobe must be distinctive. For 
such products one of the principal buying motives is the desire for 
variety, and the manufacturer must therefore offer a wide selection 
in order to cater to this buying motive. An even more important aspect 
of the demand for variety is that the total market is composed of 
numerous individuals, groups, institutions, and business concerns. Each 
may desire a particular type or model of a product. Thus for such a 
product as automobiles considerable variation is necessary in order to 
meet consumers' desires even though each party may own but one unit. 

In the field of capital goods the varieties of a particular product 
handled by certain manufacturers represent a direct reflection of the 
market demand. One manufacturer makes fifty-seven models of broach- 
ing machines, of which only six are carried in stock as standard models. 
Broaching machines are highly specialized, and they are typically de- 
signed and produced to customer specification in order to meet the 
technical needs of particular production processes. For companies in 
this field the problem of varieties to be manufactured is readily deter- 
mined by clear-cut customer demand. For many companies, however, 
particularly those handling consumer goods, the market demand is not 
so clearly defined. The number of varieties to be produced must be 


decided in terms of the anticipated sales volume of the different items. 

These two aspects of the market demand for variety in a particular 
product have important promotional implications for a manufacturer 
because the sales volume of additional items depends upon the nature 
of the demand for variety. If there is a demand for variety for its own 
sake, additional items of like character may increase sales in two ways. 
Since consumers desire to own several items in the same product class, 
an increased offering will induce them to buy new items to supplement 
those already owned. It will also attract new customers to buy both 
the old and the new items. Thus total sales volume may be substan- 
tially increased. However, if the demand for a greater variety in a 
given manufacturer's offering is of the other type, total sales may not 
be appreciably increased. 

In some products a few basic models meet the desires of a large 
part of the market and would thus represent a minimum offering by a 
manufacturer. Under these conditions he will find that only a rela- 
tively small additional sales volume would be gained by adding other 
models. Only a small part of the total market would be catered to, 
and in the rest of the market the new models might be substituted for 
the older ones but with no gain in total sales. Under some circum- 
stances, sales of a new offering may be almost entirely at the expense 
of the established items. For instance, the introduction of packaged 
sugar increased the sales of particular companies, but these sales pri- 
marily, if not entirely, replaced sales of sugar in bulk. While manu- 
facturers may increase the varieties offered in order to gain additional 
sales, it must be recognized that under certain circumstances the gain 
is somewhat illusory, for the total market will not be appreciably 

A manufacturer may add new models or varieties to gain a desired 
price or quality appeal. In 1940, Electromaster, Incorporated, brought 
out a lower-priced model of its electric range "to tap a new market 
since the higher price level is saturated." 2 In a similar manner, manu- 
facturers may add higher-priced varieties to cater to a new market 
through a quality appeal. However, two separate policies are involved 
in a decision to handle different price-quality levels of a product. First, 
as just observed, there may be the need for meeting a market demand 
for variety. By adding higher or lower price-quality varieties a firm 

2 "Electromaster Taps New Fields with Line for 'Judy O'Grady,' " Sales Management, 
Vol. XLVI, No. 9 (April 20, 1940), p. 18. 


is able to reach new markets. A second and quite a different objective 
may be involved, i.e., a desire to "trade-up" or to "trade-down." 

Trading-Down and Trading-Up. — The essential factor in both trad- 
ing-down and trading-up is that the quality reputation of the higher- 
priced item may be attached by the customer to the lower-priced item. 
The manufacturer's desire is simply to take advantage of this probable 
attitude of mind on the part of the consumer. When a lower-priced 
item is added to a line (trading-down), a substantial increase in sales 
volume may result because the new item is believed to be of high qual- 
ity within its price class. Some of the sales of the new item may simply 
replace those of a company's higher-priced items, but the net gain may 
still be substantial. However, as the consumer may have unreasonable 
expectations as to the quality of the lower-priced line, he may be dis- 
appointed in his purchase. This policy, if carried far, may gradually 
destroy a manufacturer's reputation as a producer of high-quality mer- 
chandise. It might be argued that a manufacturer's reputation is deter- 
mined largely by the lowest quality of merchandise which he produces 
and sells on the market. In effect, a manufacturer is exchanging his 
reputation as a producer of high-quality merchandise for an increased 
volume of sales. One market is being forfeited in order to gain another. 
Before a firm decides to trade-down, the probable effect of such action 
upon sales and upon the company's reputation should be fully recog- 

The procedure just described may be reversed through the addition 
of a higher-quality item to a lower-quality line (trading-up). For 
instance, a manufacturer of dollar watches may decide to produce and 
sell watches retailing at a considerably higher price. This infusion of 
additional quality into a line may be largely for promotional purposes. 
There may be little expectation of selling a large volume of the new- 
quality item, but the established items may become more attractive to 
consumers. Their reaction may be that a concern which also produces 
high-quality merchandise is likely to produce a relatively high quality in 
lower-quality items. 

It is important to recognize that there are two distinct objectives 
involved in a decision to increase the number of price-quality varieties, 
first, to gain sales by catering to a new segment of the market and, 
second, to gain sales by trading-up or trading-down. A clear-cut deci- 
sion should be made concerning which of these two policies is to be 
followed, because they are contradictory in execution. If a new variety 
is added in order to exploit a new customer group, the different price- 


quality varieties must be kept separate in the consumer's mind. This 
may necessitate distinct physical product characteristics, separate chan- 
nels of distribution, separate sales outlets, or even different brand 
names to prevent association of the items by the potential buyer. If 
the varieties are not adequately disassociated in the consumer's mind 
and ii quality is not clearly discernible by inspection of the merchan- 
dise, the lower-priced item will sell at the expense of the higher-priced 
item. This may be exactly the result which is desired, but, if this is 
attempted, the choice of variety must be with a view to fostering the 
association of both items in the consumer's mind. 

Manufacturers of certain products find definite limitations to the 
application of this policy of trading-up and trading-down. The carry- 
over of prestige based upon quality products occurs primarily when the 
customer does not have a tangible measure of quality for guidance. 
For this reason the policy of trading-up or trading-down is more readily 
adaptable to consumers' goods. Manufacturers of industrial equipment, 
in which quality is measured in the relatively tangible terms of per- 
formance and cost, would find that this policy has limited application, 
if any. When the consumer habitually demands a specific variety, pos- 
sibly conforming to specifications, there should be no attempt to shift 
his demand to merchandise in other price classes unless there is every 
reason to believe that his needs will be as well or better met by other 
items. In any event, the addition of a new price-quality variety must 
be preceded by a clear decision as to the purpose of such an addition. 
This purpose must, in turn, be based upon a clear understanding of 
the character of the market demand for variety and the extent to which 
a carryover of prestige through quality is likely to occur. 

Simplification — Reduction of Variety 

The foregoing discussion indicates that there are many legitimate 
reasons for expansion in the number of varieties offered by a concern. 
In certain instances the market may demand them, and in others pro- 
motional strategy may dictate action. But the demand for variety 
may be genuine or otherwise. Wholesalers may give a lack of variety 
as a reason for unwillingness to purchase, and retailers may do like- 
wise. Perhaps, as a reflection of this attitude on the part of distributors, 
salesmen may give the same reason for a failure to secure the expected 
volume of orders. Furthermore, salesmen often generalize too greatly 
from occasional suggestions from the market as to the demand for 
certain unusual variations in a product. One or two suggestions, al- 


though relatively unimportant, may be magnified in the salesman's 
mind to a considerable market demand for a particular variation. The 
actual demand for additional varieties may be extremely limited, but 
overemphasis may create the impression that a substantial demand 
actually exists. Action to extend the varieties offered may then be taken 
without further investigation. At times increase in variety is simply the 
outgrowth of competition. One concern adds a variety item, and the 
other concerns follow. Competitive advantage, if there is one, then 
disappears, and all may be producing varieties for which there is no 
legitimate demand. 

There are other reasons, likewise, which account for the fact that 
a line of goods often gets out of hand. Manufacturers are keenly aware 
of the effect of additional volume on cost reduction but are not so 
aware of the increased costs if a certain volume is divided too greatly 
among many varieties. One effect will be achieved by increasing out- 
put substantially in one particular variety item and quite another by 
increasing output through the manufacture of new varieties. Unit 
costs may increase rather than decrease, particularly if through substi- 
tution the older varieties are produced in lesser quantities than former- 
ly. Many manufacturers are not sufficiently aware of the degree of 
elasticity of demand for their products. Cost reductions through sim- 
plification would permit lower prices, which, if the demand was elastic, 
would increase sales. But without a full realization either of the prob- 
able effect of simplification on costs or of elasticity of demand for his 
products a manufacturer tends to accumulate a "crowded" line. 

A lack of adequate records is a factor in allowing a line to expand 
too greatly. If records are kept which show actual sales and the trend 
in sales of each variety item, there is less likelihood that those with 
limited sales will be continued. In contrast, a lack of easily available 
information on the amount which each contributes to total sales vol- 
ume may withhold discontinuance of certain varieties, although their 
usefulness to a company's line is over. Often it is discovered that a 
large proportion of sales is concentrated in a few varieties and that 
many varieties are sold with relative infrequency. At times, concerns 
for one reason or another become aware that their lines are not 
healthy and that they are offering too many varieties, and then a pro- 
gram of simplification is in order. 

The best evidence of the need for simplification is furnished in 
wartime. Materials, manpower, and industrial capacity must be con- 
served. The usual demand for varieties in merchandise must be curbed 


if the economy is to produce the finished goods needed for a war effort. 
During the first World War there were many notable instances of 
reduced cost through simplification in both producers' and consumers' 
goods. For instance, the number of varieties of metal lath was reduced 
from 175 to 24. During the recent war, simplification was again relied 
upon to rationalize production. Only certain variations were allowed 
in merchandise, even in style merchandise, such as clothing. Permitted 
manufacture of durable household equipment was limited to the so- 
called "austerity" or stripped models. The wartime economy simply 
could not afford a diversion of the means of production to meet either 
a real or an assumed demand for variety in many products. There- 
fore, in many instances, simplification of their lines was forced upon 

The possibilities of simplification are limited by a number of 
factors, the most important of which is the real market demand for 
variety. In certain products, particularly in artisans' tools and small 
items of equipment, there may be a specific use for each variety item. 
Then there is little possibility of substitution between varieties. This 
is, of course, a highly legitimate demand for variations. It does not 
follow, however, that each manufacturer must produce all the varieties 
needed by the market. There may be little possibility for a reduction 
in the number of varieties produced by an industry as a whole, but 
particular concerns may concentrate their output in the items most in 

Limits to simplification may be imposed by the relationship 
with distributive outlets. If exclusive agencies are customary in the 
sale of a product, it may be incumbent upon a manufacturer to furnish 
all the varieties which the dealer sells. In contrast, the dealer may 
accumulate variety by purchasing from a number of concerns. But 
in an exclusive agency setup he may not be able to secure merchandise 
from other producers to fill out his line. Paint manufacturers, for 
instance, usually sell only through exclusive agencies or company- 
owned retail outlets and therefore produce a complete line. 

When all concerns in an industry become embroiled in an unwise 
competitive struggle through which the line customarily produced 
contains many items for which there is not a legitimate demand, joint 
remedial action may be called for. No one concern may wish to 
eliminate certain items because of the fear that other concerns will 
be given a sales advantage. Both trade-associations and the United 
States Department of Commerce, through its Division of Simplified 


Practice, have been active in the solution of this problem. Simplified 
practice agreements have been encouraged, through which concerns 
in an industry agree to abide by a decision to limit production to a 
relatively few standardized varieties. Almost five hundred manufac- 
turers, distributors, and users indicated their acceptance in writing of a 
recently concluded agreement on brass and bronze valves. 3 Agree- 
ments were in force as of September 1, 1946, on 222 products. 4 In 
many cases the variety reduction has been very substantial. For in- 
stance, milk bottles were reduced from 49 to 4 varieties, common bricks 
from 75 to 2, blankets from 78 to 11, and metal lath from 201 to 57. 5 
The cost-savings advantages of simplification which may be 
achieved have been listed frequently and will not be belabored in 
this work. 6 The results in cost reduction are at times much greater 
than expected. When a line is far out of hand, a severe reduction 
in varieties may result in almost phenomenal savings and thus 
reduced cost per unit of output. 7 Some years ago one of the large 
manufacturers of electric refrigerators reduced by half the number of 
models produced and, through the resulting manufacturing and dis- 
tribution economies, was able to reduce its prices $25.00-$50.00 on 
each of the models retained. Volume of sales increased substantially 
over the next two years, despite the fact that certain competitors like- 
wise decreased their prices. Under other circumstances the cost-savings 
achieved may not be great either in manufacturing or in marketing. 
Thus there is much less incentive for a manufacturer to engage in sim- 
plification. The feasibility of simplification depends largely upon the 
costs of diversification. If the costs are not substantial, any small ad- 
vantage in the market gained by having a wider variety to offer would 
probably merit retention of all varieties customarily produced. 

3 Brass or Bronze Valves (Gate, Globe, Angle, and Check): Simplified Practice Recom- 
mendation R 183-46 (Washington: U.S. Department of Commerce, National Bureau of 
Standards, 1946). 


5 Variety Reduction Effected by the Application of Simplified Practice ( Letter Circular 
LC-693) (Washington: U.S. Department of Commerce, National Bureau of Standards, 

6 For an extensive listing see L. P. Alford, Cost and Production Handbook (New 
York: Ronald Press Co., 1934), pp. 312-13; also Brass or Bronze Valves, p. 4. 

7 An excellent example of simplification is given in Alexander, Surface, Elder, and 
Alderson, Marketing (Boston: Ginn & Co., 1940), p. 124. It is as follows: 'A manu- 
facturer of men's suits who had been making each year one hundred and fifty different 
models in various fabrics, colors, and weights decided to make only one blue-serge suit, 
using cloth of single weight and quality. As a result it was further possible to reduce 
manufacturing cost by from 25 per cent to 30 per cent. These savings enabled him to 
reduce prices so that twice as many suits were sold as formerly." 


The incidence of cost-savings through simplification is wide, as all 
of a company's activities are affected to some extent. Reduction in 
the number of varieties handled simply means a greater degree of 
specialization. The usual advantages of greater specialization there- 
fore appear. In manufacturing, there is less complexity than formerly. 
Fewer jigs, dies, templates, molds, and special items of equipment may 
be needed. Longer machine runs are likely without the need of setting 
up so frequently. Control of raw materials, finished stock, and repair 
parts will be less difficult and should involve less cost. Turnover would 
be more rapid, and risks of obsolescence and deterioration in inventory 
would be reduced. There should likewise be a saving in planning, 
record-keeping, stores, and maintenance. Labor should be more easily 
trained and possibly more productive. There would likewise be some 
possibility of saving in purchasing and in capital costs. Purchasing 
would be simplified, and less working capital would probably be 

The advantages of simplification are probably somewhat less 
important in marketing than in manufacturing. Inventories at all 
levels in the channel of distribution are reduced; purchasing by dis- 
tributors is simplified; and sales effort is more concentrated in a few 
items. Possible reduction in prices because of cost-savings may make 
the sales task less difficult and less costly. Nevertheless, the effect of 
greater variety in merchandise as an aid in the selling process is sacri- 
ficed through simplification. This loss may or may not be compensated 
for by lower prices, made possible by the savings achieved through 

The Optimum Number of Varieties 

The question of the number of varieties of a product which should 
be handled is, from a manufacturer's point of view, a matter of bal- 
ance. Essentially, the problem becomes the common one of attempt- 
ing to balance revenue gains against cost increases. An increase in the 
number of varieties, whether it is initially an outgrowth of real con- 
sumer demand or of a manufacturer's desire to secure a price or quality 
appeal in anticipation of increased demand, is an attempt to increase 
profits. If consumers' desires for more varieties of a product were met 
completely, a manufacturer would carry a tremendous number, for 
differences in individual tastes are almost unlimited. A manufacturer 
cannot produce all conceivable varieties without incurring excessive 
costs; neither can he meet consumer demand for most products with 


just one variety. Therefore, the problem is one of balance. It is the 
problem of establishing the optimum number of varieties. 

To a certain extent, a decision as to the number of varieties is 
based upon the belief that customers for a product desire a wide selec- 
tion and that price is relatively less important. In contrast, a policy 
of handling only a limited variety rests upon a belief that customers 
are primarily influenced in their choice by the price factor. "Variety" 
and "price" are not thought of as contradictory by consumers, but from 
a manufacturer's point of view they are in opposition. In appealing 
for purchases a manufacturer must balance the relative advantages of 
offering variety, which is attended by higher costs and limited ability 
to make a price appeal, against the advantages of limiting variety in 
the interests of lower costs, which allow a more favorable price appeal. 8 

It is difficult to generalize concerning the relative importance of 
"variety in selection" and "price" as patronage motives. Variety is 
important for such consumer goods as ready-to-wear, novelties, gifts, 
textiles, and, in general, all articles which appeal to varying tastes or 
for which there exists a desire for distinctiveness. At the same time, 
variety is important in certain industrial goods, such as gears, die heads, 
castings, and screens, as each must be made with different specifications 
for numerous particular uses. Certainly, the manufacturer's usual argu- 
ments against simplification are that variety is important to the con- 
sumer and that he must meet competitors' offerings. However, multi- 
plication of variety inevitably means the handling of items of infre- 
quent sale, and the economy that is obtained by a process of simplifi- 
cation is for some industries a more powerful sales influence than a 
wide variety is. Style goods and novelties are obvious exceptions, since 
the very existence of an enterprise depends upon a constant introduc- 
tion of new varieties. But even here, generally, a new variety replaces 
an existing one, so that the total number of varieties need not increase 
indefinitely. The success enjoyed by many companies with limited 
varieties suggests that the expressed necessity of meeting competition 
is sometimes more illusory than real. The decision concerning the num- 
ber of varieties must vary with the individual concern. In general, a 
policy of limited varieties would be indicated for commodities which 

8 "Reducing the number of models and increasing production would enable us to 
reduce production costs materially, which in turn would enable us to reduce the selling 
price, which would bring us a larger volume, which would enable us to operate on a 
smaller margin and so on" (Frank R. Pierce, General Sales Manager, and Charles T. 
Lauson, Sales Manager, Nash-Kelvinator, as quoted in Sales Management, Vol. XLVI, 
No. 7 (April 1, 1940), p. 22). 


are produced in large quantities, since the cost-savings realized would 
be substantial. On the other hand, a policy of numerous varieties 
would be indicated for commodities in which style, taste, individuality, 
or a desire for distinctiveness are important. 

Certain methods allow the manufacturer to compromise these con- 
siderations. For example, a manufacturer of men's shoes may find a 
hundred different size and width combinations necessary, even though 
a fifth of these varieties account for over half his total sales volume. 
On the other hand, dealer outlets may demand a full range of sizes in 
order to serve customers. The manufacturer could effect a compromise 
by carrying the full range of sizes in a few conservative styles and 
offering only a limited number of sizes in the more extreme styles. 
As a further illustration of such compromises, automobile producers 
generally limit production to a few basic models, but the customer 
demand for variety is met by allowing a choice among numerous body 
type, color, finish, upholstery, and accessory combinations. One auto- 
mobile manufacturing concern before the war was able to furnish 
more than five hundred cars, each different in some important respect 
from four basic size models. Some of these variations, such as in color 
and upholstery, added little to cost but greatly to the consumer's satis- 
faction with his purchase. A most interesting example of a compromise 
is one whereby individual component parts are standardized and made 
interchangeable. This is often referred to by the machine-tool indus- 
try as "unit construction." It was reported that one lamp manufacturer, 
by producing forty-six parts, could still make available some four 
thousand different lamps. 9 

Very frequently a concern fails to achieve the optimum number 
of varieties in each of its products because, as new varieties are added, 
others are not discontinued. As someone has said, new varieties are 
put in the top of the funnel, but congestion soon appears, as nothing 
is let out of the bottom. It is altogether conceivable that for some 
concerns no varieties should be discontinued over a considerable period 
of time. If each unit is selling in substantial volume and sales are 
either increasing or at least being maintained, it is probable that all 
are contributing to net profit. But varieties in a given product are 
usually in competition to some extent, and the addition of new varieties 
will therefore decrease the sale of the established ones. The new 
varieties in the manufacturer's thinking will be more acceptable to con- 

9 C. C. Balderston, V. S. Karabasz, and R. P. Brecht, Management of an Enterprise 
(New York: Prentice-Hall, Inc., 1935), p. 46. 


sumers; otherwise they would not be placed on the market. From an 
administrative point of view, therefore, in order to attain the number 
of varieties which is optimum, a line must be watched carefully to 
discover the point at which each particular variety no longer con- 
tributes to profit. It should then be discontinued if a healthy line is to 
be maintained. A line should not be cluttered up by variety units 
which have outlived their usefulness. It is largely a question of watch- 
ing the trend of sales volume in each variety unit. Administratively, 
to attain an optimum line position, it is necessary to have adequate 
cost and sales records. If these data show that a variety unit is no 
longer contributing to net profit, prompt action with the pruning 
shears should be taken. Eternal vigilance is necessary if a line of prod- 
uct varieties is to remain healthy and achieve an optimum position. 

Alternatives in Expansion 

There are two alternatives through which an individual concern 
may increase its sales volume: first, expansion in the sales of estab- 
lished products through product improvement, increasing variety, or 
price reduction and, second, expansion in sales by adding new products. 
A firm in its search for additional volume should logically consider 
first the possibilities of increasing sales of established products. This 
requires less change in customary operations than new product devel- 
opment and promotion and may be just as effective. However, the 
attitudes of managerial groups toward this problem differ markedly. 
Some managements add new products only after making very sure that 
the market for present products has been fully exploited. The attitude 
of other managements is much less conservative. They feel that there 
must be a fairly constant product input into a line if it is to be healthy 
from the marketing point of view. While some managements appar- 
ently think of line expansion as a last resort, others look upon it as a 
normal and expected occurrence. Situations differ so greatly that con- 
servatism may at times be fully justified, but farsighted managements 
do not discount the possibilities of line expansion in these times of 
tremendous change in economic life. 

Manufacturers frequently choose line expansion because of certain 
difficulties involved in increasing sales volume in established products. 
Probably the most usual difficulty foreseen is that the market for 
established products is becoming saturated. Saturation of the market 


is, of course, a relative concept. It is conceivable that the market for 
a manufacturer's products could be completely barren for an imme- 
diately forthcoming period, since every prospective buyer had pur- 
chased to the complete extent of his immediate needs. Such absolute 
saturation is rare indeed, if not nonexistent, at any time. Still some- 
thing approaching it occurs for certain producers' goods in the down- 
ward movement of the business cycle. One of the nearest approaches 
to a completely barren market was in the early thirties for locomotives. 
At that time the railroads were more than able to meet current traffic 
demands upon them with the locomotives and other rolling stock on 
hand and were not disposed to make additional purchases. However, 
the concept of market saturation is not confined to absolute exhaustion 
of a market. Again, as mentioned previously, it is a matter of degree. 
A market for consumer durables would be considered relatively satur- 
ated if ( 1 ) the product had been on the market for some time, ( 2 ) all 
likely users had become familiar with it, (3) the product had been 
purchased by most people who were interested and had the required 
purchasing power, and (4) the future market was largely for replace- 
ment purposes. There would be little opportunity under such con- 
ditions for expanding the market. Sales volume might respond to a 
substantial decrease in price but otherwise would increase only through 
an increase in population. However, when an individual manufacturer 
thinks of saturation, he may consider that a market is saturated for 
him when he sees little possibility of additional profit through a more 
extensive cultivation of the market. Under certain circumstances, 
further intensive cultivation will yield additional sales but only at an 
excessive cost which precludes additional profits. 

Frequently, manufacturers prefer line expansion to an attempt to 
increase sales of established products by price concessions because it is 
feared that a price cut will "spoil the market." 10 There is substantial 
agreement that the demand schedule of an individual firm in an indus- 
try is much more elastic than the schedule for an industry as a whole. 
Probably the most important deterrent to price-cutting at the manu- 
facturer's level is the expectation that a price cut will be met promptly 
by competitors. If this happens, any redivision of total demand in 
favor of the initial price-cutter will probably be only temporary. Under 
these circumstances any increase in total sales of all suppliers will result 
from the elasticity of the aggregate demand for the product, and the 

10 For an excellent discussion of this point see J. M. Clark, Studies in the Economics 
of Overhead Costs (Chicago: University of Chicago Press, 1923), pp. 439-44. 


initial price-cutter can expect only a proportionate share of the in- 
creased volume. When a firm is large enough to constitute a major 
portion of the total industry, line expansion may be preferred, since 
drastic price reductions might be necessary in order to gain a significant 
increase in volume. If a manufacturer is in a semimonopolistic posi- 
tion and is exploiting it to the full, that is, if he has reached the point 
of maximum profits, he would be very likely to seek additional sales 
by expansion of his line rather than by further price reduction. 

Other considerations likewise serve to strengthen a manufacturer's 
reluctance to strive for volume by offering price concessions. Manu- 
facturers are often distrustful of the effectiveness of price cuts. They 
are influenced, perhaps too greatly, by the fact that price cuts are 
frequently ineffective in the short run. Consumers may react to a price 
cut in such a way as to defeat its purpose. If they believe that an initial 
price reduction foreshadows further reductions, they may await expect- 
ed lower prices before purchasing. Such a sluggish response of the 
market may be unfortunate, especially if a manufacturer has substan- 
tially increased his inventories to handle an expected increase in sales. 

Yet another way in which a drop in prices may "spoil the market" 
is to create a fluctuating sales volume. There may be an immediate 
increase in sale of goods without an increase in actual consumption. 
If both consumers and the trade consider a price reduction temporary, 
they may increase inventories. In that event, sales at some later date 
will be reduced until such inventories are again at normal size. If this 
seems likely, executives of a concern may feel that price reductions 
will not have any desirable effect. This consideration serves as a 
restriction to price-cutting, particularly if a concern is a large factor 
in the total market. 

It is not reasonable to consider that short-run price reductions are 
in any way an alternative to line expansion. Nevertheless, a manu- 
facturer's experience with temporary price reductions may condition 
his thinking in regard to the effectiveness of price reductions either as 
a competitive weapon for creating a redivision of existing demand in 
his favor or as a means of volume increase through elasticity. As a 
result of an unfavorable experience with price reductions, either of 
long or of short duration, he may prefer line expansion as a means for 
increasing volume of sales and maintaining profits. 

While a decision to add products to a line is frequently based upon 
these somewhat negative reasons, more positive reasons are usually 
controlling. Certain definite advantages are offered the manufacturer. 


Products may be added to gain a competitive advantage or to counter- 
act action already taken by a competitor. Certain additions are directed 
at establishing or maintaining a preferred market position. Others 
appear necessary in order to permit a firm to sell directly rather than 
through distributors. Product additions may be a result of integration 
or merger. Products may be added to permit a greater utilization of 
facilities or because of the utilization of by-products. Many additions 
reflect the desire to handle a complete line. Although these reasons 
are numerous and varied, when analyzed they disclose three basic 
reasons which lead manufacturers to add products to the line. The 
first reason is a desire to gain a greater utilization of assets, both tan- 
gible and intangible. Here the objective is to recover fixed cost, which 
would otherwise be unabsorbed. The second reason is the desire to 
handle a "complete line." Here the objective is to combine products 
in such a way as to realize the maximum salability of the entire line. 
The third reason is to achieve a desired combination of risks. Here the 
objective is to combine products so as to afford a minimum of risk 
relative to profit expectations. These three are the basic objectives 
upon which a policy concerning the constitution of a line must be 

Maximum Utilization of Fixed Costs 

Manufacturing. — The most important reason for adding products 
to a line is to utilize more fully the various resources of a manufac- 
turing organization. As idle plant and equipment are readily notice- 
able by observation and apparent from production records, and like- 
wise so evidently costly, products are frequently added to use this idle 
capacity. During the depression period of the early thirties the tend- 
ency to add products was due primarily to this factor. For instance, 
in 1933 the Murray Body Corporation of America began the manu- 
facture of steel beer barrels and the fabrication of stainless-steel prod- 
ucts. The Star Equipment Corporation, makers of motors and elec- 
trical equipment, used its idle plant to manufacture synthetic dry- 
cleaning units. These new products required the type of equipment 
already in the plant, the labor skills possessed by former employees, 
the managerial ability of executives, and engineering and technical 
skills similar to those required in the company's original production. 

Marketing. — Product additions are not limited to a recovery of 
fixed manufacturing costs. Lines are sometimes expanded to permit 
a greater use of physical distribution facilities or a greater utilization 


of a manufacturer's selling organization. In many instances the organ- 
ization for physical distribution is one that can be used for a variety 
of products. This fact partially explains the policy of expansion fol- 
lowed by the meat packers. Since the packers owned refrigerator cars, 
they could handle perishable food products other than meat — for 
instance, dairy products. They also added canned goods at one time, 
since the branch warehouses could easily handle these items also, but 
they were forced to discontinue them by the Packer's Consent Decree 
of 1920. 

Another commonly expressed reason for additions to a line is to 
take advantage of the ability to sell different products through the 
same selling channels. The Curtiss Candy Company added cookies, 
potato chips, salted nuts, and soft drinks to its line of candies. 11 A 
prime consideration was that Curtiss salesmen could easily handle 
these items in addition to the company's candy bars and were already 
calling on the desired retail outlets. The cost of distribution was 
spread over a greater number of items, which made for economy. 

While the main advantage of such additions is the more effective 
use of the salesmen's time, other less evident gains result. The addition 
of products permits the assignment of smaller sales territories and 
more intensive cultivation of the market. Better salesmen may be 
attracted by greater and more secure earning opportunities, and the 
manufacturer may be better able to keep his sales force intact during 
periods of low demand. 

Management. — Some companies have added products to their lines 
in order to take full advantage of the managerial abilities and special- 
ized knowledge of their top personnel. A manufacturer of sound- 
transmission equipment added electric razors and coin-weighing 
machines because these products called for precision work and required 
the same technical knowledge. While this type of expansion may help 
to cover overhead costs of management, it may be carried much further 
than overhead-cost absorption alone would dictate. Executives may 
feel that the proper field of activity for the concerns with which they 
are identified is defined by the knowledge and ability of management. 
One manufacturer of automotive parts and accessories acquired a plant 
which made consumer power tools. Seemingly, this addition repre- 
sented a definite departure from automotive parts, but the two products 
actually have similar production and marketing problems. The dis- 

11 Otto Schnering, "Facts behind the Curtiss Candy Program of Line Expansion," 
Sales Management, Vol. LII, No. 22 (November 1, 1943), p. 24. 


tribution of automotive parts is characterized by sale to a few large 
customers. Therefore, the parts manufacturer operated his business 
on the basis of large-volume production at a low margin. The company 
explained its addition of power tools in terms of the interest and experi- 
ence of its management in this type of operation. Power tools would 
also be produced in large quantity and sold on contract to one large 
retail customer. The new product thus required the familiar pattern 
of high-volume, low-margin operation in both production and dis- 

Raw Materials. — Some companies consider their proper field of 
activity to be the manufacture and sale of products made from a com- 
mon raw material, and they expand their lines accordingly. This type 
of expansion is common for manufacturers of products made of glass, 
cork, rubber, and plastics. The Owens-Illinois Glass Company has 
expanded its line to such an extent that it virtually lives up to its 
slogan "Everything in Glass." This company originally made only 
glass containers but has added many new glass products, including 
structural and industrial glass, filter glass cloth, and fibrous glass. In 
the glass industry the principal reason for a complete line is that the 
various concerns produce the raw material and fabricate it into finished 
products as well. In other cases, cork and rubber for instance, there is 
less reason for a complete line, as the raw material is purchased. How- 
ever, if the manufacturer adds new products which require the same 
raw materials as those customarily processed, the larger volume of 
purchases of such materials may be made at some saving in unit cost. 

By-products. — By-products are particularly important factors in line 
expansions in the meat-packing, food, petroleum, coal, and chemical 
industries. By-products handled by meat packers include fertilizer, 
glue, gelatin, grease, tallow, soap, shortening, and various meat prod- 
ucts made from meat scraps. Plants which process grains often convert 
the refuse from the processing into fertilizer and animal food. In oil 
refining, the various products are obtained by successive refining, and 
the production of one product requires the removal of certain other 
products. While certain by-products emerge in marketable form, 
others would be waste unless further processed. This factor explains 
the production of paint by smelters and refineries. And in the chemical 
industry the utilization of by-products leads toward a continuous line 
expansion, in that the processing of one by-product creates another 
by-product, which, in turn, creates still another and so on. 

By-products lead to some surprising product combinations. For 
example, in 1944 Botany Worsted Mills entered the cosmetic field. 


The processing of wool yields the by-product lanolin, which is used 
as the base for creams and lotions. While this addition of cosmetics 
was facilitated by the fact that department stores serve as outlets for 
both woolen goods and cosmetics, the company entered a field involv- 
ing many new marketing and manufacturing problems and techniques. 
Advertising. — The desire for full utilization of fixed costs is not 
limited to such tangible assets as plant, equipment, and marketing 
organization. Some line expansions permit a greater exploitation of 
the good will attached to a brand name and secure greater realization 
from advertising outlays. Many companies have placed numerous 
products under a common "blanket" brand and have advertised the 
products as a group or "family or products." The Heinz (H. J.) 
Company offers numerous products under its famous trade-name, 
"57 Varieties." Often it is difficult to determine whether the possi- 
bility of a greater realization from advertising expense and brand- 
name good will is the reason for a given product addition or merely 
a condition facilitating the expansion. It seems evident, however, that 
the sizable advertising investment necessary to establish a brand could 
serve as an incentive to place numerous products under that brand in 
order to realize its full promotional value. 

Desire for a Complete Line 

The second basic reason for adding products to a line is that manu- 
facturers desire to offer a "full" or "complete" line. The exact connota- 
tion of this item is difficult to grasp, and it undoubtedly varies as 
between people who use it. For some people the desire to handle a 
complete line simply reflects the attitude that a firm should handle the 
various items commonly associated in a particular field of business 
activity. However, the arguments for handling a complete line are 
based upon much more tangible considerations. When the right prod- 
ucts are combined in sale, each contributes to the success of other 
products in the line. Essentially, the advantage of offering a complete 
line rests upon the fact that certain products when sold together have 
greater salability than if offered singly. In large measure the salability 
of a complete line results from the tendency of buyers to concenetrate 
their purchases with one or a few sources. 12 Offering a complete line 

12 Overemphasis may be given this consideration by some sources, but its importance 
cannot be gainsaid. For instance, "The tendency for all customers to concentrate on buying 
from as few suppliers as possible forces many companies to expand their lines" (Eugene 
Whitmore, "Expansion Policies of 200 Companies," American Business, January, 1945, 
p. 34). The tendency to concentrate purchases may be particularly strong for small, inde- 
pendent retail outlets, but it should be observed that many outlets, such as department 
stores, may handle only the "leading" item from several competing lines. 


is important in attracting and holding the patronage of customers. 
As an argument for the merger of the Standard Oil Company of New 
York and the Vacuum Oil Company, it was contended 

that lubricating oils are usually distributed through the filling stations distrib- 
uting the gasoline. The Vacuum Oil Company, which had specialized in the 
production of a wide range of lubricating oils, was encountering difficulty in 
selling its oils, because it had little gasoline to offer to the filling stations. . . . 13 

A complete line may mean a line consistent with that handled by 
distributive outlets, or it may mean a line designed to fill the needs 
of a particular class of trade or ultimate consumers. When radio 
dealers began to sell household appliances, they preferred to deal with 
manufacturers who could provide a number of such appliances. As 
a result, some radio manufacturers expanded their lines to include 
products, such as washing machines, oil burners, electrical appliances, 
and air-conditioning equipment. Office-equipment manufacturers gen- 
erally have expanded their lines to include the whole range of ma- 
chines commonly used in offices. In the radio field the line was 
expanded to include other products handled by dealers. In other cases 
the expansion included products handled by the intermediate whole- 
sale trade. This reason for expansion is less common, since the whole- 
sale trade exists primarily to perform the function of assembly and 
thus brings together the variety of goods desired by retail outlets. 
The desire to purchase from only a few sources is not so strong at 
the wholesale level as at the retail level. In either instance, neverthe- 
less, the additions made in order to handle a complete line are often 
based upon the tendency of buyers to use a minimum number of dif- 
ferent sources of supply, and manufacturers expand their lines in order 
to take advantage of this patronage motive. 

One manufacturer of automotive parts and accessories originally 
manufactured a gasoline gauge only but was compelled to expand the 
line until it was complete, i.e., until k included all the parts included 
on the dashboard panel. This expansion was considered necessary in 
order to retain his principal customers. Although the desire of auto- 
mobile manufacturers to buy a complete panel from one source was 
not the only reason for expansion of the line in this instance, it was 
the most important single factor. Other very practical considerations 
were likewise present. The company had found difficulty in selling 
only a few dashboard items because competitors with a complete line 

13 By permission from The Decline of Competition by Arthur R. Burns, p. 448. 
Copyrighted, 1936, by McGraw-Hill Book Co., Inc. 


brought out dashboards whose design excluded the company's gauge. 
Furthermore, competitors underpriced the company on the few items 
that it did make and priced other items in their lines sufficiently high 
to compensate for such price reductions. 

Finally, the complete line may include products related in use. 
Products whose efficient performance (real or imagined) is depend- 
ent upon the type and quality of the products with which they are 
used tend to be purchased from the same source. Manufacturers may 
desire their products to be used together in order to protect their 
reputation for satisfactory performance. For instance, International 
Business Machines Corporation manufactures and sells punch cards 
for use in its machines. Customers expect products made and sold 
by the same firm to be better designed for joint use. 

In summary, a "complete" line in the marketing sense is deter- 
mined solely by customer demand. Products are added to meet the 
desires of buyers who purchase from one or a relatively few sources. 
Business concerns find it convenient to place orders for numerous 
products, particularly of the supply type, with one or a few manufac- 
turers. In other instances, diversified demand is largely a matter of 
custom and tradition; purchasers simply expect certain products to be 
offered in combination. The fact of joint use and the expectation of 
more effective use if both products are produced by the same company 
may justify a complete line in the minds of both the manufacturer 
and the ultimate user. The complete line includes products related in 
these various ways, but the advantage realized is the increased sal- 
ability of the whole line. 

In some respects, offering products together in order to handle 
a complete line is similar to constituting a line so as to realize a maxi- 
mum utilization of fixed costs. It may be argued that a manufacturer 
must carry a complete line in order to secure patronage and, if such 
patronage is not secured, that a firm's assets will not be fully utilized. 
However, the two differ in at least one important respect. Since the 
demand for a complete line is based upon the fact that the market 
desires certain products to be offered together, the products may require 
completely different production processes, types of equipment, and 
labor skills in production. The bases for decisions of management are 
different. The first involves a combination of products which require 
common facilities for production and physical distribution. The second 
involves the handling of products which have a greater salability when 


offered jointly than when offered separately. The first leads to a 
product structure which achieves an optimum utilization of physical 
assets. The second represents the adjustment of product structure to 
meet market demand. 

Combination of Risks 

Many product additions are made with the objective of achieving 
a greater measure of security. The third general objective involved 
in the constitution of a line is therefore to combine products so as 
to secure the desired combination of risks. Management commonly 
expresses this desire as one which avoids "having all the eggs in one 
basket." Westinghouse Electric Corporation has followed a policy of 
diversification until there are very few fields of business activity in 
which Westinghouse products are not represented. This company 
handles extensive lines of electrical and nonelectrical equipment sold 
to the industrial market, as well as numerous electrical appliances 
sold to consumers. 

Many firms feel that it is desirable to combine products sold to 
industry with products sold to consumers. During generally depressed 
business conditions the demand for consumer products as a group 
declines less than does the demand for industrial goods. Companies 
selling in both these markets may well find the combination of risks 
less burdensome than the risks in selling the industrial market alone. 
Union Carbide and Carbon Corporation and the E. I. duPont de 
Nemours Company both expanded into the consumers'-goods field 
even though this meant setting up new and separate sales organiza- 
tions and likewise involved extensive consumer advertising. 14 If de- 
pendence upon heavy industry is in part overcome by the relative 
stability of consumers'-goods lines, a stronger risk position is achieved. 

In a similar way manufacturers have brought products into a line 
in order to avoid dependence upon one industry. For example, the 
Baldwin Locomotive Works depended upon one industry, and volume 
fluctuated severely. In the early thirties, this company added hydraulic 
press machinery, water turbines, Diesel engines, ship propellors, test- 
ing machinery, steel forgings and castings. [However, the most clear- 
cut use of line structure to achieve a better combination of risks is 
found in line expansions aimed at leveling out seasonal fluctuations. 
Companies often handle products with offsetting seasonals in order 

u George W. Mathias, "Union Carbide Spreads Its Gains," Magazine of Wall Street, 
Vol. XLVI, No. 7 (July 13, 1940), p. 408. 


to achieve a more level rate of production and sale. The seasonal 
problem is not simply a production problem but is frequently of great 
importance to distributive outlets. A manufacturer's line may be ad- 
justed to strengthen dealer relationships by offering products which 
will give distributors a year-round volume. One reason for the Philco 
Corporation's addition of refrigerators in 1939 was to help "dealers 
to offset drastic seasonal variations of radio set sales through year- 
round selling of companion lines." 15 When a manufacturer follows a 
policy of exclusive agency distribution, it is especially important that 
he offer dealers a line of products so balanced as to level out season- 
ality, for otherwise the better outlets may be drawn to competitors 
who offer wider lines. 

While the desire to minimize risk is a very common factor in deci- 
sions concerning the constitution of a line, it must be recognized that 
the desire for stability is tempered by the low-profit margins which 
attend security. Essentially, decisions on a line of products are influ- 
enced by the desire to achieve a certain combination of risks and profit 
prospects. Certain line expansions have been aimed at higher margins, 
even though there was additional risk. General Mills, Inc., has 
expanded its activities into fields quite unrelated to flour milling. 
In 1941, the company established a special commodities division and 
assigned to it vitamin D operations, wheat-starch manufacture, and 
likewise the production of flavoring agents and amino acids. In 1946 
the company introduced its household appliances. The new products 
are high in risk but also high in margin, whereas milling operations, 
while stable, are low in margin realization. The broader line now pro- 
duced and sold by the company may well offer a more desirable risk 
combination than continued specialization in milling. 16 

This objective of an optimum combination of risks is closely related 
to the objective of greater utilization of facilities in that the risks 
attending changes in demand and technology are actually those of 
underutilization of resources. To business management the desire to 
spread and combine risks and the desire to avoid unexpected and pre- 
cipitous reductions in sales volume are very real and tangible considera- 
tions in product policy. Therefore, an attempt is often made to antic- 
ipate the threat of idle capacity by expanding the line of products. 

15 "Philco Diversifies," Business Week, March 18, 1939, p. 23. Philco also added dry 
batteries and portable room conditioners and is prepared to enter the television field. The 
corporation used the slogan, "Philco All Year Round." 

19 "General Mills of Minneapolis," Fortune, Vol. XXXI, No. 4 (April, 1945), p. 117. 


The basic goal, however, is not so much one of attaining maximum 
utilization of resources as k is one of assuring continuity of operations 
at a reasonably high level. Essentially, management attempts to adjust 
the line of goods so as to achieve a desired adjustment of risks and 
profit expectations. 


The desire to realize ( 1 ) a full utilization of facilities, ( 2 ) a high 
salability of the complete line, and ( 3 ) an optimum level of risks may 
well lead business concerns to handle multiproduct lines. However, 
there are important limitations to the policy of line expansion and, 
in individual cases, the decision must' reflect a balancing of the advan- 
tages and the disadvantages of a proposed product combination. The 
advantages of a policy of simplification, previously discussed, suggests 
the general limitations to continued expansion of the line. While it 
is evident that the desirability of handling a given line of products is 
limited, in general, by the diversity of activities involved in their 
manufacture and sale, it is necessary to examine the specific manner 
in which such limitations arise. Some of the practical difficulties in 
constituting a line of goods are concerned with the following factors. 

Maintenance of Quality 

Usually a manufacturing organization cannot produce products of 
widely different qualities with a high degree of efficiency. An organ- 
ization accustomed to a large degree of tolerance finds it difficult to 
manufacture high-precision items, and the maker of a high-quality 
item may find that a skilled labor force cannot adjust itself readily 
to the time and cost requirements of lower-quality goods. Further- 
more, an attempt to reduce the quality of workmanship in order to 
achieve low-cost production may result in lower quality of workman- 
ship on the higher-quality items. One manufacturer of fine knives 
began the production of a lower quality for sale to variety chains. 
He found that his costs were excessive, since his skilled workmen did 
not discard their work habits on high-quality production. Moreover, 
as the adjustment was made, the manufacturer was flooded with com- 
plaints concerning the lowered quality of his fine goods. 17 

Differences in quality between products frequently result in market- 

17 O. C. Holleran, Check Sheet — Introduction of New Consumer Products ("Market 
Research Series," No. 7 [Washington: U.S. Government Printing Office, 1935], p. 36). 


ing difficulties as well as in production difficulties. If the products 
are sold to similar customer groups, the lower-quality item will tend 
to destroy the reputation of the firm for high-quality production. The 
manufacturer will become known primarily as a producer of lower- 
quality items. It is most difficult to sell successfully products which 
differ too greatly in quality unless variation in quality is readily appar- 
ent to purchasers when inspecting merchandise or unless the two prod- 
ucts are sold to separate markets and customer groups. Of course, this 
difficulty is not so important in those industrial fields in which quality 
differentials are subject to tangible and specific measurement. 

Performance of the Sales Force 

Expansion of a line often spreads the effort of a company's sales 
force over too many products. Certain items are therefore likely to 
be neglected. Salesmen tend to concentrate their efforts on those prod- 
ucts which are most easily sold or, if commissions vary, on those prod- 
ucts which will yield the greatest compensation relative to the effort 
needed in their sale. The difficulty of securing the proper balance of 
effort between the products handled varies directly with the width 
of a line and the essential likeness of the various items. As a line 
increases, it may become necessary to supervise the sales force more 
closely, to segregate the sales force on a product basis, to depart- 
mentalize the home office on a product basis, or to attain the necessary 
measure of control in some other manner. If an expansion of line 
calls for the cultivation of additional sales outlets, incomplete or 
unbalanced market coverage may result. Realignment of sales terri- 
tories may be required to make it possible for salesmen to call upon 
all desirable accounts. In order to get proper attention on the new 
items in a line, fixed itineraries may be necessary, with calls upon 
certain manufacturers or dealers prescribed. In any event, product 
additions will change the existing pattern of salesmens' activities and 
may scatter their efforts so as to result in inefficient performance. The 
market pattern for a company's products may likewise be changed. As 
a result, lower unit costs of selling often assumed in line expansion 
have not always been forthcoming. 

Provision for Service 

Expansion of a line at times gives rise to additional service prob- 
lems. For some products, such as conveying machinery, the service 
provided by the manufacturer is largely of a survey character. If 


the product is so designed that it furnishes the expected utility and is 
properly installed, it can be operated over extended periods with rela- 
tively little attention. But it must be designed to meet specific condi- 
tions relating to product and factory layout, and in this work the 
manufacturer has an important part to play. For other products there 
is little of the survey type of service work needed. Perhaps the work 
necessary is in demonstration and training of operators. Office equip- 
ment, such as business machines, requires the whole gamut of service 
work, including survey, installation, demonstration, and afterservice. 
For certain types of equipment the user largely assumes the responsi- 
bility for service work. Mines and railroads are examples. In other 
instances, such as automotive transportation, the seller assumes the 
responsibility for providing facilities for service work. The implica- 
tion of the foregoing comments to the question of line expansion 
should be apparent. A new product under consideration may be closely 
in alignment from the point of view of manufacturing facilities needed 
in production; it may even be purchased by the same customers; but, 
if its service requirements differ too greatly, there would be doubt 
about the advisability of including it in a line. 

Channels of Distribution 

Certain product expansions necessitate entirely new selling chan- 
nels, especially if the new product is sold to different customer groups. 
A most interesting example is the Briggs Manufacturing Company's 
addition of plumbing equipment. 18 This well-known manufacturer 
of automobile parts and bodies was well equipped to manufacture any 
variety of drawn-steel stampings and, in 1935, started production 
of plumbing ware. Plumbing ware differs from the previous line 
in many important respects; it is sold through the usual channels 
to the consumer market, whereas Briggs's former experience was con- 
fined to the industrial market. Sales to automobile companies are 
made on a direct basis and to a large extent on contract, but plumbing 
equipment is largely sold through wholesale to retail outlets. Since the 
company had not previously sold through this distribution channel, a 
new sales force was recruited and trained to introduce the new products 
to the trade. 

Business concerns operating in a channel of distribution often object 
if concerns in other channels are permitted to sell products carrying a 

18 D. G. Baird, "How Briggs Built a New Sales Force To Sell a New Line," Sales 
Management, Vol. XXXVII, No. 12 (December 1, 1935), p£. 638 ff. 


particular manufacturer's name. For instance, a manufacturer of elec- 
trical specialities found that his jobbers and electrical dealers objected 
strenuously to the direct sale of a new product to department stores and 
chain stores. This opposition caused such a great loss of sales in his 
regular line that the sale of the new product to chain and department 
stores had to be discontinued. 19 Eventually the product was removed 
from the company's line. 

Policies in Promotion 

Product additions frequently give rise to difficulties in promotion. 
If a new product is different in type and function from others in a 
line, it may be necessary to assume the expense of a promotional cam- 
paign for its introduction. Promotional needs for new products depend 
in large measure upon the extent to which consumer acceptance of 
the established products carries over to the new ones. A manufacturer 
of automotive parts added plumbing equipment to his line. The fact 
that this equipment was made by a well-known parts manufacturer 
did not have an appreciable effect on the attitude of wholesalers, 
retailers, or consumers toward the new product. He was entering an 
entirely new market and one which was not familiar with his estab- 
lished products. On the other hand, a well-known manufacturer of 
electric refrigerators found a ready acceptance of his electric stoves 
and ironers. A carry-over of good will depends upon whether the 
products are sold to the same or to similar customer groups, meet the 
same or similar needs, and have the same or similar quality aspects. 
From the manufacturer's standpoint, the carry-over of reputation is 
desirable not only at the ultimate consumer level but also at the retail 
and wholesale levels. And, of course, this carry-over may exist at one 
level and not at another. Consumer good will is based upon a recog- 
nition of a brand or company name and upon previous experience 
with a company's products. On the other hand, distributor good will 
is influenced by a manufacturer's distribution policies. Wide margins, 
co-operative advertising, price maintenance, selective distribution, etc., 
all create distributor good will for a particular company and its prod- 
ucts. Promotional difficulties are encountered if there is a lack of 
carry-over of either consumer or distributor good will. 

One additional promotional difficulty deserves comment. A cer- 
tain amount of prestige and distinctiveness accrues to a concern which 

Holleran, op. cit., p. 66. 


handles a single product because it is a specialist. (In general, con- 
sumers feel that the work of a concern which handles only one prod- 
uct is superior to that of a firm which divides its attention among 
several products. There may be small basis for such a reaction; a firm 
may be superior in many different products. However, this attitude 
toward the concern which specializes may not be of much importance. 
Consumers tend to carry their evaluation of superior products over to 
the other products in a line, thus giving a common valuation to the 
individual items in the group. Nevertheless, many firms find it advan- 
tageous to use the "specialist" appeal in promotion; 20 but it no longer 
applies when the firm diversifies its product line. 

Promotional difficulties are encountered if, in the consumers' mind, 
the quality aspects of the added product are not only different but 
somewhat inconsistent with those of the established products. One 
manufacturer of low-priced radios successfully added a medium-priced 
camera. The two were related in that both were light assembly prod- 
ucts and required similar technical facilities in manufacture. How- 
ever, this manufacturer came to believe that the two products had 
different quality characteristics in the consumers' mind, as cameras 
were considered a "precision" product to a greater extent than low- 
priced radios. Therefore, he thought that sale of radios and cameras 
under a common name would lower the consumers' quality evaluation 
of the camera. This would not be true of the joint manufacture and 
sale of cameras and optical instruments (such as rifle telescopes and 
binoculars). These two products have similar quality characteristics, 
since both are considered precision products by consumers. Promo- 
tional requirements would be similar, if not the same, and good will 
accruing to one could accrue, in large measure, to the other. 

Duplicating Organization 

In some instances, expansion of a line requires decentralization 
and duplication in both manufacturing and marketing organizations. 
One manufacturer of industrial scales found this necessary when he 
added a line of household appliances. While this expansion did gain 
the manufacturer a measure of freedom from dependence upon a 
highly fluctuating industrial market, it introduced new activities so 
different that joint control and supervision was precluded. When 

20 See advertisements of General Detroit Corporation (Fortune, April, 1945, p. 186); 
Quincy Compressor Company (Fortune, September, 1944, p. 180); South Bend Lathe 
Works (Fortune, June, 1944, p. 56). 


diverse or unrelated products are handled, it may be necessary to main- 
tain separate production and sales organizations, and such duplication 
is not only expensive but further complicates the management task 
of co-ordination. 


Typically, the difficulties attending line expansion arise because 
products added to afford manufacturing advantages do not fit well 
into the distribution pattern then in use. The addition of appliances 
by automobile-parts manufacturers and by General Mills, Inc., 
permitted the fuller utilization of technical abilities and manufactur- 
ing equipment, but the new items had marketing requirements quite 
different from those of the products customarily produced. The 
advantages realized because of a close alignment in production were 
partially nullified by a lack of alignment on the marketing side. The 
reverse situation might occur if products were added because of mar- 
keting alignment. Entirely new plant and equipment might be needed 
in order to manufacture products added to complete a line. Because 
of this fact, products are frequently purchased from other concerns 
rather than manufactured. Products made from a common raw materi- 
al frequently have quite different manufacturing processes, which 
would require heavy capital commitments in plant and equipment. 
They may be sold through dissimilar channels of distribution to quite 
different sectors of the national market. 

There is no single formula for use in determining in advance the 
desirability of proposed product combinations. In general, their desir- 
ability depends upon the extent to which the various products have 
similar manufacturing and marketing requirements. But a similarity 
in one of these requirements need not be, and often is not, accom- 
panied by a similarity in the other. Therefore, it is usually a question 
of balancing similarity in one against a lack of similarity in the other 
in order to determine whether there is likely to be any net advantage 
in adding the item. 

It is extremely doubtful whether any generalization would have 
much validity in regard to the relative importance of alignment in 
manufacturing or in marketing. At least such a generalization should 
only follow a detailed study of many particular situations. Their rela- 
tive importance is materially affected by the basic policy of the indi- 
vidual concern. Some businessmen feel that the cardinal objective is 


to maintain and protect the existing business organization and assets. 
Frequently, the heaviest and certainly the most visible investment is 
in plant and equipment, and this serves to focus attention on the extent 
of the manufacturing alignment. Moreover, the manufacturing organ- 
ization may be less flexible than the marketing organization. One 
manufacturer called attention to the fact that a sales force can be 
trained and thereby adjusted to a new line, whereas plant and equip- 
ment are relatively fixed. However, such considerations are matters 
of degree and vary from firm to firm. If a manufacturer finds his 
present products are being replaced by newly developed, superior 
ones, the introduction of new products requiring new manufacturing 
facilities may be the best single procedure for protecting older capital 
commitments. Also, it should be observed that marketing facilities 
may themselves be highly specialized and relatively inflexible. A sales 
force capable of the efficient sale of large transformers and generators 
could not be expected to sell small motors and lighting equipment 
with equal efficiency. 

While some students of this subject emphasize the similarity of 
manufacturing requirements, others suggest that marketing require- 
ments are paramount: 

The question as to whether diversification (expansion of the line) is a 
logical process depends upon whether or not the proper personnel can be called 
up to carry out the new plans, whether the new product to be made is sufficiently 
allied to the old product to enable the company to distribute through the same 
channels and thus make use of its good will and its sales connections, or whether 
entering a new field will so scatter and thin out the efforts and attention of the 
company that the whole business will suffer. 21 

The conflict between manufacturing and marketing requirements 
has led others to suggest that alignment in either marketing or pro- 
duction is sufficient for the addition of products: 

The test for proper products to add for greater volume is not a single 

formula But it may be fairly said that if the proposed new product will 

either fit into the existing manufacuring facilities or be suitable for the existing 
sales force it may well have serious consideration as an addition to the business, 

even if the product does not seem to fit our line exactly Products which 

can be made on our same machines by our same workers, should be appropriate 
additions if they can be sold properly. It doesn't matter much whether we can 
use our same salesmen or must hire more. Similarly, if our present sales depart- 

21 Roy Dickinson, "Diversification — Safeguard or Mistake," Printers' Ink, Vol. XX, 
No. 3 (March, 1930), p. 31. 


ment can step right into the successful distribution of a new line, it is not vital 
that it can be made by our established facilities. 22 

Clearly an "ideal" product combination would require the same 
marketing and manufacturing facilities. But it is equally clear that 
many desirable product combinations fail to meet these conditions. 
The criterion is one of degree — the degree to which the products have 
similar requirements. And the need of similar requirements is of less 
importance in the short run than in the long run. If high profits are 
in prospect, then a new product may be added even though com- 
pletely new manufacturing and marketing facilities are called for. 
The product is simply profitable in its own right. But from the long- 
run point of view the test is not simply whether the individual product 
can be made and sold at a profit. After competitive forces come into 
play, the fundamental question is what particular types of firm can 
make and sell the product most efficiently. And the manufacturer 
who can handle the product most efficiently is the one already handling 
products with similar requirements in manufacturing, marketing, and 
management. While the criterion is admittedly a varying one, the 
general principle is that a properly constituted line includes products 
of similar requirements. 

The history of a concern organized in 1931 to produce and sell 
radios offers an interesting illustration of this general criterion for 
the product line. In 1936 the firm developed a line of miniature 
cameras and camera accessories. Various optical instruments were 
then added to the line, and, in 1938, the radios were discontinued. 
Optical instruments and cameras have similar manufacturing require- 
ments, as they use the same type of plant and equipment, labor skills, 
and technical skill in management. The products are closely allied 
in marketing, since they require the same type of outlets, may be sold 
by the same sales organization, and have similar styling problems. 
Both are viewed by consumers as precision products, and there is a 
carry-over of consumer association from one to the other. 

Radios and cameras are not so clearly allied. Although they are 
in alignment in manufacturing, since both products call for light 
assembly, radios and cameras require different outlets and different 
techniques in sale. It is doubtful whether the two products would be 
associated in the minds of consumers. The company has considered 

22 W. H. Conant, "More Volume: Problems in Trying to Expand Sales through 
Added New Lines," Barron's, Vol. XX, No. 22 (May 27, 1940), p. 9. 


resuming radio production to take advantage of the manufacturing 
alignment but recognizes the marketing difficulties involved. If advan- 
tages realized because of manufacturing alignment outweigh the dis- 
advantages in marketing, the company might compromise and produce 
radios for sale to others under private brands. 


The problem of the proper constitution of a line of products is a 
constantly recurring one for many concerns. Moreover, it is a dual 
problem, pertaining both to the number of varieties of particular prod- 
ucts and the number of products. The problem in reference to varieties 
is primarily one of balancing the advantages gained by catering to 
the desires of the market for variety against the additional costs which 
must be assumed. Increased variety produces complexity in the pro- 
duction process and thus increased unit costs. Marketing and financing 
costs may also be increased. Nevertheless, if a company, through offer- 
ing greater variety, can substantially increase its volume of sales the 
greater spread of overhead costs may • serve as a counterbalance and 
actually result in lower unit costs. Both negative and positive influ- 
ences are therefore at work on the cost factor. Most concerns are 
aware of the conflict between greater variety in models, sizes, materials, 
and other factors through which variety is achieved and costs. Those 
variations in product are therefore made which increase costs the 
least. In some products numerous varieties can be made from a few 
basic models or standardized parts without greatly increasing costs. 

The first step in understanding the problems involved in product 
combinations is to recognize the basic objectives which may be in- 
volved. These objectives are the more complete utilization of rela- 
tively fixed assets, both in production and in marketing; better service 
to the market through offering a complete line; and an optimum 
combination of risks. The first objective serves to focus attention on 
handling products of similar manufacturing and marketing require- 
ments. Difficulties encountered when products are distinctly unre- 
lated are thus avoided. The second objective gives emphasis to the 
fact that line structure is itself an important sales weapon. A properly 
constituted line from the point of view of the market enhances sal- 
ability. The third objective is concerned with continuity of operations 
through the alleviation of seasonal and cyclical fluctuations by deci- 
sions on line structure. 


The importance of product similarity in manufacturing and market- 
ing requirements is clear; the desirability of meeting the legitimate 
demands of the market is likewise clear; but the two objectives are 
often in conflict. The desire more fully to utilize manufacturing assets 
may suggest the addition of products to a line which would be 
entirely foreign to the distribution pattern in use. In contrast, addi- 
tions which appear advisable in order to have a complete line might 
require the acquisition of new productive capacity and a new labor 
force. It is doubtful whether the third objective — an optimum com- 
bination of risks — would then be realized. In determining whether 
certain products should be added to a line, it is frequently necessary 
to balance the advantages offered by alignment, on the one hand, 
against probable disadvantages and increased costs, on the other. The 
risk objective may or may not give rise to conflicts with the other 
two. It is associated more closely with production than with marketing 
because fixed costs are more prevalent in the former than in the latter. 
Nevertheless, the desire to diversify risks often leads business con- 
cerns into distinctly unrelated marketing and even manufacturing 
activities. A firm is indeed fortunate when, through product develop- 
ment, new products are designed or otherwise acquired which lessen 
the risk factor and are fully in alignment in both production and 

When judging an existing line of products and varieties, it should 
be determined whether each is working actively and contributing to 
profits. This can be determined only through adequate cost and sales 
records. Product-development work, if actively engaged in, should 
furnish new and improved items, and old items should be discon- 
tinued promptly when their usefulness is over. A certain flexibility in 
thinking and action on the part of executives is a necessary ingredient 
in both the formulation and the administration of a product policy. 
It will aid in the attainment of a properly constituted line of goods — 
one which meets reasonably well the legitimate demands of the market 
and is well balanced in both manufacturing and marketing require- 


Alexander, Ralph S.; Surface, Frank M.; Elder, Robert F.; Alderson, Wroe. 

Marketing, chap. v. Boston: Ginn & Co., 1940. 
Alford, L. P. Cost and Production Handbook. New York: Ronald Press Co., 1934. 
Balderston, C. Canby; Karabasz, Victor S.; Brecht, Robert P. Management of an 

Enterprise, chap. iii. New York: Prentice-Hall, Inc., 1935. 


Burns, Arthur Robert. The Decline of Competition, chap. ix. New York: Mc- 
Graw-Hill Book Co, Inc., 1936. 
Clark, J. Maurice. Studies in the Economics of Overhead Costs, chap. xxi. 

Chicago: University of Chicago Press, 1923. 
Culliton, James W. Make or Buy. "Business Research Studies," No. 27. Boston: 

Graduate School of Business Administration, Harvard University, 1942. 
Frey, Albert Wesley. Manufacturers' Product, Package, and Price Policies, chaps. 

viii and x. New York: Ronald Press Co, 1940. 
"General Mills of Minneapolis," Fortune, Vol. XXXI, No. 4 (April, 1945), 

p. 117. 
Hardy, Charles O. Risk and Risk Bearing, chaps, i and ii. Rev. ed. Chicago: 

University of Chicago Press, 1931. 
Investigation of Concentration of Economic Power: The Structure of Industry, 

Part VI: The Product Structures of Large Corporations. "Temporary Na- 
tional Economic Committee Monographs," No. 27. Washington: U.S. 

Government Printing Office, 1941. 
Kaldor, Nicholas. "Market Imperfection and Excess Capacity," Economica, 

Vol. II (February, 1935), p. 33- 
Murphy, Carroll Dean. "Simplification as a Business Policy and Procedure," 

Journal of Business, Vol. VI, No. 4 (October, 1943), p. 230. 
Murphy, John Allen. Merchandising through Mergers, chaps, iii and ix. New 

York: Harper & Bros, 1930. 
"Post- War Plans of Manufacturers and Wholesalers," Dun & Bradstreet Survey 

of Fourth Quarter, 1944. New York: Dun & Bradstreet, Inc., 1945. 
Robinson, E. A. G. The Structure of Competitive Industry. London; Nisbet & 

Co, Ltd, 1931. 
Shaw, A. W. "Simplification: A Philosophy of Business Management," Harvard 

Business Review, Vol. I, No. 4, p. 417. 
Whitmore, Eugene. "Expansion Policies of 200 Companies," American Business, 

Vol. XV, No. 1 (January, 1945 ) , p. 10. 

Chapter IV 

IN THE first chapter it was noted by way of introduction to the 
subject of product development that merchandising included those 
activities which are involved in the adjustment of goods produced to 
consumer needs or desires, that is, to the characteristics of demand. 
It was likewise noted that this adjustment may be either qualitative or 
quantitative in nature. We shall now consider those activities neces- 
sary to bring about qualitative adjustments or, more specifically, the 
questions involved in product and market testing through which busi- 
ness concerns are enabled to make the necessary adjustments. 

Technical Testing versus Consumer Testing of Products 

A worth-while distinction can be made between technical testing 
and consumer testing of products, although they are both concerned 
with the adjustment of product to the characteristics of demand. 
Through product testing of a technical nature a manufacturer is able 
to compare the physical characteristics of his products with those of 
his competitors and come to some conclusion as to their comparative 
merits. He is likewise able to determine within reasonable limits 
both the absolute and the relative performance of products designed 
for like uses under simulated conditions of use. This type of testing 
may be done either at a manufacturer's plant or, in order to secure 
entirely unbiased judgments, in commercial laboratories. 

Consumer testing, in contrast, comprehends those activities where- 
by consumers' attitude toward products is determined. This type of 
product testing has aptly been called "market analysis for product 
control." 1 It may be done at three different levels: first, prior to the 
introducion of a product on the market; second, through preliminary 
introduction in carefully selected test markets; and, third, as a checking- 
up device after a product has been on the market for some time. 
The first of these may be called ' pre-testing" or consumer testing 
per se; the second, "preliminary market testing"; and the third, "post- 

1 Donald R. G. Cowan, "Market Analysis for Product Control," Proceedings of the 
1938 Ohio Conference of Statisticians on Business Research, November 12, 1938 
(Columbus: Ohio State University, 1938), p. 16. 



These three levels of testing can be considered most effectively in 
inverse order. First, it should be recognized that all products which 
have been placed on the market and purchased by consumers are under 
continual informal testing during the period of use. If the products 
of a certain manufacturer secure a greater measure of approval than 
those of his competitors, repeat purchases will flow in his direction 
and augment his sales volume. Sales of competing manufacturers are 
thus an indication of consumer choice based upon experience in using 
products or informal product testing. While relative sales volume is 
an expression of consumers' attitude toward competing products and 
is thus a constant source of information on competitive position, it 
does not answer the question as to why consumers preferred one prod- 
uct over another. A manufacturer must therefore seek more detailed 
information on consumers' attitudes toward his products in order to 
enable him to keep his products in the forefront of style, utility, or 

A constant awareness of consumers' attitudes toward products is 
needed. Changes in attitude are likely, as competitors may improve 
their products and thus shift the relative demand situation. Important 
changes may take place in the desires of the consuming public because 
of changes in living conditions. As a result of either of these factors 
a manufacturer's products may become less acceptable to consumers 
than they were formerly. Sufficient attention to a determination of con- 
sumers' attitudes may furnish information for redesign of products 
before loss of consumer acceptance materially affects sales volume. 
Perhaps a protracted loss in sales volume can be traced to other factors, 
such as accessibility or price; but in most instances, assuming products 
are available for purchase, the most likely reason for a loss in relative 
position in the market is a change in consumers' evaluation of compet- 
ing products in reference to their prices. 

Preliminary market testing is accomplished through placing new 
products for sale in test markets. These are carefully selected so that 
the products are exposed to a reasonable cross-section of the total poten- 
tial market. Through this procedure, accompanied by adequate pro- 
motional effort, a product is brought directly into competition with 
similar products, and relative sales volume will give some indication 
of consumer preference. Repeat purchasing under normal sale condi- 
tions rather than initial purchasing brought about through distribu- 
tion of coupons or samples to secure initial trial of a product is of 



most significance. In fact, a manufacturer cannot be sure of consumer 
acceptance until repeat purchasing has become habitual. Market test- 
ing should not, however, unduly delay placing a product on the 
national market. Again, as indicated previously, sales data only indi- 
cate preference for a product as a composite of qualities. They do not 
indicate why one product is preferred over another. Nevertheless, data 
on sales in test markets have proved very useful as some indication of 
whether a manufacturer can safely go ahead with national distribution 
of his new products. If a product fails to "take" in the test markets, 
it may be advisable further to investigate the reasons therefor through 
pre-testing procedures. 

Pre-testing might be considered a form of preliminary market test- 
ing, but it differs from the procedure just outlined, as the product is 
not offered for sale. Rather it is submitted to potential consumers for 
the express purpose of determining their reactions. At times a number 
of competing products are submitted in the same experiment, and the 
consumer is asked to state his preference. Either new products or old 
products which are undergoing drastic changes may be tested in this 
way. The large food companies, for instance, do everything possible 
to make sure that new products will be acceptable to consumers before 
they are placed in test markets or in the national market. They con- 
sider that the capital commitments necessary for promotion and 
physical distribution of a new product are too great to permit of hap- 
hazard product development without preliminary product testing by 
potential consumers. 

From the foregoing analysis it should now be apparent that con- 
sumer product testing is a continuous process. It may begin with pre- 
testing before a new product is initially placed on the market and 
continue as long as the product is made available to the public. Em- 
phasis on new product testing should not, however, be allowed to 
obscure the fact that old products need testing likewise, for in a 
dynamic situation, such as we find in the field of product development, 
a product can lose its pre-eminent position in the market quickly. Only 
through constant technical comparisons of a product with those of 
competitors and through information on consumer reactions can a 
manufacturer keep his products in an acceptable position in the market. 

There are many ways in which a manufacturer may arrange for 
consumers to test his products. It may be done through the use of 
consumer juries or panels, experiments in retail outlets, or sales in 


test markets. In certain instances a product has been taken directly to 
consumers by investigators; the consumer has been allowed to use the 
product; and, through detailed interviews, information has been 
secured on the consumers' reactions. Another widely adopted method 
is the use of mail questionnaires, through which the consumers' atti- 
tudes toward products already in use is determined. Another pro- 
cedure, one which has been used in the automotive field, is to test 
consumers' attitudes toward innovations in product by placing them 
initially on a line of cars which is of least importance to a company, 
for instance, on the De Soto or the Pontiac rather than on the Chrysler 
or the Buick. Later, if the innovation "takes" in the market, it may be 
placed on all of a company's cars. These methods of consumer testing, 
the problems which their use presents, and their advantages and dis- 
advantages will be considered shortly. 

Significance of Product Testing 

Prior to a further discussion of testing procedures it may be desir- 
able to consider the significance of product testing. First, it should be 
reiterated that product testing is a part — an important part — of prod- 
uct development. As such it partakes of the general significance 
attributed both to new product development and to product improve- 
ment. The over-all objective is to provide a fundamentally sound 
basis for a manufacturer's marketing program. More specifically, the 
principal objective of testing is to glean valuable information which 
will enable a manufacturer to redesign his products so that they will 
gain a wider and quicker acceptance in the market, thereby attaining 
an increased sales volume. In this connection it should be observed 
that through testing activities there is greater likelihood that a manu- 
facturer will improve, or at least retain, his competitive position in 
the market. 

Product testing has particular significance in view of the fact that 
substantial capital commitments are usually made both for promo- 
tional effort and for physical distribution when a product is introduced 
on the national market. These are in the nature of developmental 
costs. If such capital commitments are made and the product being 
introduced does not prove acceptable to consumers, the loss involved 
may be of considerable magnitude. Furthermore, a manufacturer's 
position in the market is seriously weakened by the introduction of a 
product which is not acceptable to consumers. Ill-will for the com- 
pany, distrust of the quality of its other products, and unfavorable 


word-of -mouth advertising may result. From that time forward con- 
sumers may be more wary of the manufacturer's products, and later 
introductory campaigns are likely to be less immediately successful. 
In other words, the significance of product testing is measured in part 
by the high cost of errors which might have been avoided through 
testing and redesigning a product prior to its introduction. 

Product testing is of significance, likewise, because of its contribu- 
tion to the solution or alleviation of other management problems. For 
instance, product testing brings to light numerous facts which are 
useful as advertising appeals, as well as selling points which may be 
effectively utilized by a company's sales organization. 2 The results of 
testing likewise give confidence to a selling organization through proof 
of merit or superiority of products and their ability to compete effec- 
tively with other manufacturers' products in the market. Another 
point of a similar, though negative, character is that through product 
testing advertising claims made for a product may be justified. This 
is of particular importance in view of the responsibility placed upon 
manufacturers for truth in advertising by the Wheeler-Lea Amend- 
ment to the Federal Trade Commission Act. Manufacturers are not 
allowed to use advertisements which are misleading in any material 
respect or which fail to reveal facts material in the light of representa- 
tions. Therefore, the claims made in advertising copy must be fully 
capable of justification. After the amendment was passed, the validity 
of claims made by many manufacturers was challenged by the Federal 
Trade Commission, and testing activities were thus accentuated. As 
an illustration, one of the large food companies made substantial finan- 
cial- outlays for investigation in medical laboratories to determine 
whether its advertising claims that certain cooked cereals alleviated 
constipation could be justified. 

Product testing may likewise aid a manufacturer in reference to 
service on his products, in the fulfilment of warranties, and in pricing. 
Obviously, less service will be needed on products which have been 
fully tested in advance and therefore are more technically capable of 
meeting the reasonable expectations of consumers. Most technical 

2 The following appeared in an advertisement of the Simmons Company, makers of 
the Beautyrest Mattress: "New Beautyrest lasts 3 times longer! Ten different types of 
mattress, from $19.75 to $39.50, were crushed and mauled by a 200-lb. roller at the 
United States Testing Co., Inc., Hoboken, N.J. After 489,000 poundings, the New Beauty- 
rest was still in sound sleeping condition. No other mattress stood up even one-third as 
long! That's why the 'luxury comfort' of Beautyrest is guaranteed for 10 years' service, 
although under normal use it should last far longer," 


products sold to consumers, such as household appliances, carry manu- 
facturers' warranties which must be fulfilled if a product fails to per- 
form satisfactorily. For products which have been effectively tested, 
manufacturers will be called upon less frequently to make good on 
their warranties. In reference to price determination, technical testing, 
which reveals the comparative merits of a manufacturer's product in 
relation to those of his competitors, furnishes him a reasonable basis 
for comparative pricing. Testing by consumers will similarly reveal 
information on how they would rank competing products as to qual- 
ity and thus furnishes a basis for comparative pricing. 

Analysis versus Performance Testing 

A distinction should first be made between analysis testing and 
performance testing or, stated more simply, between what a product 
is and what it will do. As manufacturers produce to specifications, the 
problem of analysis testing, as far as their own products are con- 
cerned, is not one of determining composition of finished products in 
the sense of finding out what they are made of or how they are made 
but one of determining the right specifications initially and then of 
maintaining product uniformity subsequently. Thus a manufacturer 
engages in analysis testing all through the manufacturing process in 
order to secure uniformity of product. Such testing obviously is not 
a marketing function. A manufacturer may, however, have his finished 
products check-tested, perhaps by a commercial laboratory, through 
the selection of a sample of his products from distributive agencies 
for testing purposes in order to discover whether uniformity was, in 
fact, achieved or whether deterioration of the product had taken place 
subsequent to shipment from the factory. 

Another common practice is to purchase units of product made by 
competitors, disassemble them in one manner or another, and thus 
determine their composition and their relative merit in reference to 
the raw materials used, their processing, or the manner of their assem- 
bly, mixing, or other form of combination. Distinct advances in 
product designing may result from the information gained from tech- 
nical testing of this character. However, the other question as to per- 
formance of the product, either relative or absolute, will not necessarily 
be answered by this procedure. 


A strong case can be made for the assertion that performance 
testing — the determination of what a product will do for the con- 
sumer, that is, the utility which it will give — is of more importance 
than analysis testing. As one writer said: "We believe it would make 
no difference if a carpet were made of hay, if that carpet had acceptable 
appearance, wearing quality, cleanability, color fastness and met all 
the other requirements demanded of a good carpet." 3 The problem, 
and one manifestly implied in this statement, is to determine whether 
a carpet made of hay meets all the requirements of a good carpet. 
One way in which the necessary facts could be discovered would be 
to put such carpets into the hands of an adequate sample of con- 
sumers for use and then to test the carpets periodically to discover 
whether they retained their appearance and were durable and whether 
other consumers' requirements were being met adequately. 

The obvious difficulties involved in this procedure are those of 
cost and time duration, particularly for products of a durable char- 
acter. It might be a decade or more in some instances before a full 
history of use of any particular piece of equipment could be secured. 
Furthermore, this procedure would necessitate the full co-operation of 
a group of consumers, and such co-operation might not be forthcom- 
ing. Therefore, the manufacturer attempts to overcome these diffi- 
culties by simulating use conditions in a laboratory and then giving 
the product as much use in a few hours or days as it would normally 
get in many months or years. In order to follow this procedure, he 
must first know, as far as possible, the environmental factors surround- 
ing use by consumers and also the manner of use, including frequency, 
duration, and intensity of use. Obviously, he cannot simulate use 
conditions unless he knows them in the first instance. The second 
step is to provide equipment which will simulate use conditions. Com- 
mercial laboratories have been generally effective in doing so; for 
example, a series of tests of women's hose has been devised through 
which their wearing qualities can be determined. Machines have- been 
developed through which snag tests, abrasion tests, and elasticity tests 
are made. For the testing of mattresses a machine was devised which 
looks like a giant lawn roller. This roller, manipulated by a belt drive, 
is pushed back and forth across the mattress approximating the 

" "What It Does' More Vital than 'What It Is,' " Women's Wear Daily, September 
30, 1937, p. 20, 


pressure which might be given by the human body. A piece of equip- 
ment called a "fadometer" was devised to test fabrics for color fastness. 4 
Yet another illustration of simulating conditions of use is furnished 
by the facilities provided at the 'proving grounds" of General Motors, 
Chrysler, and other automobile manufacturing companies. Cars are 
subjected to particularly severe road conditions in order to determine 
how they perform and their durability under such conditions of use. 

The question immediately arises as to whether conditions of use 
can be simulated with a reasonable degree of accuracy in laboratories 
or on proving grounds. On this point there is likely to be much differ- 
ence of opinion, for the difficulties involved are great and the experi- 
ence of different individuals may have been favorable or otherwise. 
The correct answer is likely to be of the "Yes"-and-"No" variety. The 
ease of simulation of use conditions depends upon the type of product 
and whether there is marked diversity in the manner and environment 
of use. For capital goods the problem is less difficult than for consumer 
goods, as use conditions do not vary so greatly and the manner of use 
is determinable in less time and at less cost. Rational motives govern 
purchasing to a greater extent, and performance means much the 
same thing to all users. Equipment is often sold under a guarantee of 

For consumer goods, in contrast, conditions of use may vary 
greatly. Certain items of household equipment, for instance, get 
quite different treatment and intensity of use by large and by small 
families. Electric refrigerators and residential heating equipment get 
substantially different intensity of use in the southern and in the 
northern states. Lubricating oil for motor vehicles has different use 
conditions in the northeastern states, where good roads abound and 
severe weather prevails during the winter months, and in the south- 
western states, where fewer roads are hard-surfaced and are therefore 
more dusty, and where temperatures are less variable. There would 
be even greater variations in use conditions and in the opinion of 
customers as to what constitutes acceptable performance in clothing, 
curtains and draperies, and bedding. On the other hand, there are 

* These illustrations were taken from Allen L. Brassell, The Commercial Laboratory 
Aids the Consumer (Hoboken, N.J.: United States Testing Co., Inc.). Other illustrations 
are given in Mabel Taylor Gragg, Merchandise Testing as a Guide for Consumer Buying, 
"Business Research Studies," No. 22, Vol. XXV, No. 6 (Boston: Harvard University, 
Graduate School of Business Administration, Bureau of Business Research, November, 
1938). A primary source of illustrations is the Journal of Research of the National 
Bureau of Standards ( Washington ) , 


some products for which neither the manner of use nor the environ- 
mental conditions surrounding use vary so greatly. Nor can the con- 
sumer either harm or conserve certain products while they are in service. 
Radiators, lighting fixtures, and insulation may furnish examples. 
Sheer technical merit is of greatest importance; but even for these 
products use conditions would show some variation, and the problem 
of simulating use conditions would present some difficulties. 

From the foregoing discussion the difficulties encountered in the 
first two steps of performance testing, that is, securing information 
on the actual conditions of use and simulating those conditions in a 
laboratory experiment, are apparent. After the testing is done, the 
next step is to check the results achieved in the laboratory with actual 
service results, in order to determine whether a significant correlation 
exists between them. When a positive correlation has been established, 
confidence in the efficiency of the test comes likewise, but it should 
not lead to unwarranted conclusions. The results of a test are signif- 
icant only in relation to the conditions of use comprehended in the 
test. For instance, there may be a positive relationship between the 
tests made on the fadometer previously mentioned and the actual 
fading of textiles when in use by the consumer. However, this test 
tells the consumer and the textile manufacturer exactly nothing about 
the extent to which the textile under examination will shrink when 
laundered. Experimental tests of fertilizers on a loam soil planted to 
potatoes may be of little value as an indication of the effect of fer- 
tilizer application to a clay soil planted to wheat. While this may be 
considered an obvious conclusion, still it should be stressed, for sim- 
ulated use conditions seldom comprehend all possible use conditions 
and it is always a matter of question as to the legitimacy of imputing 
certain test results to different use patterns. 

While the difficulties of simulating use conditions in laboratories 
or on proving grounds are many and varied, the value of performance 
testing as a tool of management should not be seriously doubted. The 
alternatives are simply (1) to assume that a product will perform 
satisfactorily and thus have consumer acceptance and then go ahead 
with promotional effort and physical distribution, with the attendant 
risk involved, or (2) to go through the costly and time-consuming 
process of actually conducting an experiment in homes or factories to 
determine the performance of a product during its life-span. These 
alternatives may at times provide the best method of procedure, but 


not in the majority of instances. The conclusion seems fully warranted 
that technical testing to determine the likely performance of products 
in use has an important part to play in product development. Never- 
theless, it must be done scientifically, with all that that word connotes, 
if the results are to be relied upon by management. 

The Use of Independent Testing Laboratories 

It should first be noted that there are various types of testing 
laboratories, all concerned with product testing but under different 
auspices. First, the manufacturer may have his own laboratory in which 
he continually tests his products and those of his competitors. An 
example is furnished by the testing kitchens of the food companies. He 
may, in contrast, place his product-testing work in the hands of com- 
mercial laboratories, which serve the manufacturer under contract. He 
may likewise be aided by technical laboratories established by adver- 
tising agencies. Product testing then becomes a service furnished by 
such agencies under the usual fee basis. In addition, there are numer- 
ous laboratories which have been established to protect the retailers' 
or consumers' interest. Among them are those of large department 
stores, publications, and consumer groups. Some magazines, for in- 
stance, Good Housekeeping, maintain laboratories in which the goods 
of concerns which advertise in their pages are tested. Consumers' Re- 
search, Incorporated, tests products in order to secure information to 
be used as the basis for purchasing recommendations to its members. 
Professional associations, such as the American Medical Association 
and the American Dental Association, maintain laboratories to deter- 
mine the medicinal value of products. Many devices, systems, and 
materials are tested for safety by Underwriters' Laboratories, Inc. 5 
While laboratories of similar type may serve different groups and 
may or may not be directly connected with the manufacturer, they 
are, nevertheless, all engaged in activities to determine either the 
composition of products or their performance under conditions of 
simulated use. 

The question arises as to whether a manufacturer should retain 
one of the commercial laboratories for product testing. While in- 

5 Underwriters' Laboratories, Inc., is chartered as a non-profit organization without 
capital stock under the laws of the State of Delaware to establish, maintain, and operate 
laboratories for the examination and testing of devices, systems, and materials. Founded 
in 1894, the enterprise is sponsored by the National Board of Fire Underwriters, and is 
operated for service, not for profit" (Testing for Safety [Chicago: Underwriters' Labora- 
tories, Inc., 1945]). 


dividual circumstances vary greatly and generalizations are thus risky, 
still a good case can be made for the use of a commercial laboratory, 
whether or not the manufacturer has laboratory facilities of his own. 
First, commercial laboratories are specialized agencies in the field of 
product testing, and they are likely to be effective because of that fact. 
Second, they may be more unbiased and thus more objective in their 
investigations than are manufacturers' laboratories. Third, they have 
been very successful and will probably continue to be so in the devel- 
opment of specialized equipment for testing purposes. Fourth, the 
commercial laboratories, in a sense, serve as arbiters between the pro- 
ducer and the consumer — a third party in whose judgment both the 
producer and the consumer may have confidence. Fifth, the consumer 
is likely to have greater confidence in the claims made for products 
subsequent to testing if the testing has been done by an independent 
concern. Finally, testing is likely to be less costly if done in a com- 
mercial laboratory, particularly for small and medium-sized concerns. 
These arguments for the use of a commercial laboratory center about 
two general considerations, namely, the greater independence and ob- 
jectiveness of the commercial laboratory, particularly in the eyes of the 
consumer, and the efficiency gained through specialization in a par- 
ticular function. 

A further possible advantage of using a commercial laboratory is 
the certification plan which certain laboratories offer. This plan in- 
volves the use of a seal of quality provided by the laboratory for use 
in advertising and other promotional work. The plan operated by the 
United States Testing Company, Inc., is described as follows: 


The Plan 

The Testing Company operates a division devoted solely to certifying prod- 
ucts manufactured and distributed by the members of its Certified Merchandise 
Group. The members of this Group have all pledged to maintain quality stand- 
ards and to abide by the regulations of the Certification Plan. 

Before any manufacturer can become a member of the Group and have his 
product certified, he must submit it for test and analysis. If the product rates 
sufficiently high in laboratory tests for raw material content, construction, and 
serviceability, and if the promotional claims made by the manufacturer are found 
to be valid, the product is accepted for certification and is awarded the Seal of 
Quality. The manufacturer's product then becomes a member of the Certified 
Merchandise Group. He enters into an agreement with the Testing Company 
permitting him to identify his product with the Seal of Quality on labels, hang- 


tags, and in advertising, and the Testing Company, in turn, assumes the right 
to conduct quality control and check tests on the certified product. 

The agreement is in the form of a signed contract listing the responsibilities 
of both parties and covers a basic period of one year; it calls for a stipulated 
monthly fee to be paid by the member manufacturers, this fee being based upon 
the volume of testing that will be required for the particular product. 

Standards and Methods of Testing 

The standards employed in the Certification Plan are, wherever possible, 
taken from existing specifications. The following societies, agencies, and specifi- 
cations set the standards and methods of testing that are followed in the labora- 
tory on materials that are applicable: 

American Society for Testing Materials 

American Standards Association 

Society of Automotive Engineers 

American Medical Association 

Commercial Standards — National Bureau of Standards 

American Association of Textile Chemists and Colorists 

United States Pharmacopoeia 

Federal Food and Drug Act 

American Dental Association 

Army, Navy, and Federal Specifications 

Where there are no existing standards, the Testing Company conducts ana- 
lytical and performance tests and then establishes quality standards for the 
product being tested. Where no established method of testing exists, the Re- 
search Department designs suitable apparatus that is then built in the Testing 
Company's Precision Instrument Department. 

Check Testing and Policing 

In order to insure that product quality is continually maintained in the 
interests of the consumer, the Certification Plan stipulates that members of the 
Testing Company's Consumer Panel make monthly purchases of the certified 
product on the open market. For the purpose of controlling the quality of tht 
material in the manufacturer's plant, samples are also taken each month from 
the production line. Both series of samples are then subjected to laboratory tests 
to determine whether or not they conform with the certification standards of 
construction and performance. Test reports showing the results of these tests are 
issued monthly to the Group member. Since the certification and the Seal of 
Quality are actually probationary awards, dependent upon the product main- 
taining its quality standards, the manufacturer is immediately notified of any 
deterioration of quality so that he can take steps to readjust methods of produc- 
tion. Failure to do so results in the withdrawal of Certification. 6 

A number of factors in reference to this plan should be carefully 
noted. First, the laboratory tests products for raw-material content, 

6 This material was taken from a promotional pamphlet entitled Certified Merchan- 
dising Plan of the United States Testing Company f Inc, 


construction, and serviceability under a contract with the client. Sec- 
ond, samples for testing are taken both from the production line and 
from sales agencies. Third, failure to maintain quality leads to with- 
drawal of certification. Furthermore, although it is not mentioned in 
the quotation, "the United States Testing Company, Inc., itself, assumes 
responsibility for the maintained quality standards of certified prod- 
ucts." 7 Therefore, the consumer has double protection in that he has 
not only the warranty of the manufacturer but also that of the testing 

Another feature of the plan, again not mentioned in the quotation, 
protects both the retailer and the consumer. If the purchaser of a 
product, after use, believes that it is of faulty construction and is 
therefore not capable of giving the utility expected, he can make a 
complaint to the retailer from which it was purchased. The retailer 
can return the product to the manufacturer and will probably do so, 
particularly if he thinks that the consumer's complaint is a legitimate 
one. The testing laboratory provides a service whereby the manufac- 
turer can return the article to the laboratory for retesting. The objec- 
tive of retesting is to determine whether the article was of inferior 
quality when purchased or, in contrast, whether the failure of the 
product to give the expected utility was, for some reason, the fault of 
the consumer. Perhaps the product was abused in some manner or 
subjected to unreasonable use conditions. In any event, the laboratory 
determines the party at fault, and the consumer is reimbursed if his 
claim is considered to be justified. Thus the chain is complete, in- 
volving initial testing, sale, use by the consumer, complaint, return of 
the product, retesting, and either dismissal of the complaint or reim- 
bursement, depending upon the decision made as to the assignment 
of responsibility for the failure of the product to give the expected 

In summary, the independent testing laboratory has an important 
service to offer to the manufacturer in product testing, in recommenda- 
tion or certification, and, possibly, in retesting when needed to estab- 
lish responsibility. This work could presumably be done likewise in a 
manufacturer's own laboratory, but whether with equal effectiveness 
would be questioned. There is specialization in each case; by the in- 
dependent laboratory in product testing as such, by a .manufacturer's 
laboratory in product type, that is, only of his own products or those 

7 Advertisement of the United States Testing Co., Inc. 


of other manufacturers which are in direct competition with them. 
A manufacturer might reasonably argue that the competitive aspect 
of product development, including testing, requires that secrecy be 
maintained and that this is less difficult if testing work is done by 
the company itself rather than by an independent concern. On the 
other hand, the manufacturer's laboratory is not an adequate substitute 
for an independent laboratory from the consumer point of view, for a 
particular division of a company cannot serve in the public conscious- 
ness as a trusted third party between the company and the consumer. 
In order to attain a position of complete impartiality there should not 
even be a principal-client relationship between the laboratory and the 
manufacturer; nevertheless, unbiased action by the laboratory may 
reasonably be assumed under such a relationship if the laboratory is well 
known and has a good reputation to protect. It simply cannot afford to 
recommend or certify its clients' products unless quality is well main- 
tained, unless only justifiable claims are made in advertising and other 
promotional effort, and unless redress is promptly and cheerfully 
made to the purchaser when legitimate complaints against the manu- 
facturer's products are registered. 

The validity of certification or other forms of product recommen- 
dation by laboratories depends almost entirely upon the effectiveness 
of testing procedures. Altogether too frequently in the past, recom- 
mendations and certifications have been made for products by organ- 
izations established to "protect" the consumer, by consumer associations, 
by publications, and, perhaps, even by commercial laboratories without 
the necessary background provided by effective product testing. In at 
least one instance the Federal Trade Commission charged that recom- 
mendations were not based upon adequate testing of products. Unfor- 
tunately, consumers usually are not in a position to know whether 
testing has been done well. Without proper safeguards, product recom- 
mendations may provide a disservice rather than a service to them. The 
recent improvement in product-testing procedures and equipment should 
be of immeasurable aid in product development, should improve the 
"quality" of recommendations as a guide to purchasing, and should thus 
benefit both manufacturers and consumers. 


We now turn to a discussion of consumer testing of products in 
contrast to technical testing. As noted previously, all products are con- 
tinually being tested by consumers in the process of use. Inevitably, 


consumers react either favorably or unfavorably to any product or 
brand of product in use for the first time. Products or brands habitually 
used because of either durability or repeat purchase may be taken for 
granted and thus produce no conscious reaction so long as they give 
the expected utility, but failure to do so will cause a prompt and un- 
favorable reaction. For instance, if a man's watch fails to keep correct 
time and he thereby misses an important appointment or if his car 
fails to start in the morning, his reaction is immediate and often vio- 
lent. This is product testing under normal conditions of use. When 
products are sold initially in test markets, they are likewise tested 
informally by consumers under normal use conditions. There may also 
be pre-testing, through which manufacturers induce consumers to test 
products in advance of placing them on the market. This is not testing 
under normal conditions of use, although such conditions may be 
closely approximated in the case of food or drug products. Pre-testing, 
therefore, holds an intermediate position between testing under normal 
conditions of use over the life-span of a product and technical testing 
under simulated conditions of use in a laboratory. In pre-testing, 
testers are consumers, but actual use conditions are not fully approxi- 
mated. Pre-testing in this connection might be termed "experimental 
use" of products by a sample of actual or potential users. 

Consumer testing for the purposes of our discussion will include not 
only actual testing by consumers either after normal purchase or under 
conditions of experimental use induced by the manufacturer as a step 
in product development, but also those activities whereby the manu- 
facturer or any other interested party attempts to discover consumers' 
attitudes toward products. The thinking which prompted these activ- 
ities is vividly expressed in statements such as the following: tf The 
mind of the buyer is the raw material from which sales are made"; 
"There is only one person qualified to say just what the motorist prefers 
and that is THE MOTORIST HIMSELF"; "Your car as you would 
build it." 8 

An incident from the product-development experience of a large 
chemical manufacturer will serve to illustrate the importance of these 
activities. This manufacturer developed in his laboratories an antiseptic 
which tests proved to be of superior quality as a germ killer and de- 
odorant. The antiseptic was almost colorless and entirely odorless. 

8 These statements were taken from various publications of the Customer Research 
Staff, General Motors Corporation, Detroit (italics added). They can probably be attrib- 
uted personally to Mr. Henry G. Weaver, Director of the Staff. 


The manufacturer thought that these properties might appeal to con- 
sumers, but preliminary consumer testing indicated strongly that con- 
sumers were so accustomed to the usual sharp, pungent odor and taste 
of antiseptics that fluids without such properties were considered at 
least in the doubtful class as germ killers and deodorants. As a result 
the manufacturer added a substance which would furnish a pungent 
odor and taste, although by so doing he increased cost and made no 
improvement in the technical qualifications of his product. Ingrained 
habits of thought on the part of consumers had dictated the change. 
In this instance, as in most others, consumer testing serves either to 
confirm or to deny the conclusions reached by laboratory personnel 
about the acceptability of products to consumers. Consumer testing 
is needed as well as technical testing, for it is very difficult to predict 
in advance the characteristics which consumers will desire in products. 
Problems and procedures of consumer testing will now be considered 
in some detail. 

Problems in Consumer Testing 

Prior to an analysis of the procedures followed in consumer testing, 
a brief discussion of the most difficult problems involved may be help- 
ful. A basis for the evaluation of procedures will thereby be provided, 
for the effectiveness of any procedure depends in large part on whether 
certain problems are recognized and solved. The first problem and 
often the most difficult is the selection of an adequate sample of con- 
sumers to whom products will be submitted for testing purposes or to 
whom questionnaires will be sent in reference to products already in 
use. A sample should have the statistical attributes of reliability and 
proportionality. The attribute of reliability refers to the size of the 
sample, while the attribute of proportionality refers to its composition. 
Through the use of statistical formulas the size of the sample needed 
under particular circumstances can be computed, or the required num- 
ber can be determined by attention to the consistency of the informa- 
tion given from successive tests as they are made. When the results 
become stable, that is, when the addition of further increments to the 
sample has little, if any, effect on the results, then a sufficient sample 
has been used. The problem of proportionality in the sample must be 
approached by a study of the nature of the potential market for a 
product. The sample must be an honest replica of the potential market 
for the particular type and class of products being tested. Obviously, 
it would be folly to use as testers individuals who could not, as a result 


of environmental conditions, use a product or whose purchasing power 
was not sufficiently great to permit its acquisition. Only through in- 
vestigation of the potential market can a truly representative group of 
participants for a test be selected. 

A second problem, one of equal importance, is to attain the 
necessary supervision and control in testing work of an experimental 
character. After the testers have been selected, the testing must be 
conducted with a sufficient degree of control and supervision, for, 
otherwise, extraneous factors may enter and invalidate the results. For 
instance, independent judgment on the part of each participant in a 
test is necessary; therefore, controls are frequently devised to assure that 
the reactions of one participant cannot be influenced by the reactions 
of another. When testers are asked to try two or more competitive 
products and then to state their preference, it is common practice to 
remove all distinguishing marks, such as brand names, so that the 
tester will not be swayed in his judgment by the source of the product, 
by previous advertising claims, or by his reactions from previous use. 

These examples may suggest other associated problems in testing 
work of an experimental character. Selection of the location of testing 
work assumes significance, for control can be exercised more effec- 
tively in some locations than in others. A good case can be made for 
testing under environmental conditions surrounding normal use. This 
would suggest testing in homes for food products and consumer dura- 
bles and in offices for office equipment and supplies, probably on the 
basis of written directions to the participants rather than by direct, 
personal supervision by company representatives. Written directions 
may not be an adequate substitute for personal supervision. At least, 
it is apparent that difficulties of control and supervision are much 
greater in homes and offices than when participants are assembled for 
testing purposes. Thus a conflict exists as to the location of testing 
and one which requires attention and, if possible, adjustment when 
plans are being made for testing activities. More will be said about 
these problems later. Here it is sufficient to note that they cannot be 
avoided, for product testing often involves experimentation, and rigid 
controls are needed just as in laboratory experimentation in the physical 

A third general problem, one of equal magnitude to those previ- 
ously mentioned, is to devise procedures, either written or oral, for 
eliciting information directly from consumers on their attitudes toward 


products. Stated otherwise, it is the problem of securing true answers 
to the questions asked either in interviews or in questionnaires. To 
handle this problem successfully requires unusual understanding of 
human reactions and motivations, as well as a fertile imagination. In- 
terviewers must be trained to handle the respondent in such a manner 
that his reactions are secured in the necessary detail. * Oral questions 
must not be stated in such a way that they call for a certain reply, 
thereby substituting the attitude of the interviewer for that of the 
respondent. Most respondents can be so influenced and directed in 
their answers by the interviewer — and will be if he is not careful in 
his approach — that the information secured is not a true reflection 
of the respondents' attitudes. Similarly, written questions can be so 
devised that they call for certain answers or fail entirely to elicit the 
type of information desired. Both research workers and practitioners 
in marketing-research methodology recognize that only slight changes 
in the wording of questions may lead to unexpectedly large variations 
in response distribution. Thus both the development of materials and 
procedures for the training of interviewers and the construction of 
questionnaires require painstaking work over long periods of time, as 
well as sound judgment. 

- Interview procedures and questionnaires should be carefully tested 
on a small sample of respondents to see if they are effective tools for 
securing the desired information before they are used widely. Un- 
trained interviewers and poorly constructed questionnaires do secure 
information, but not of acceptable quality for the use of management. 
The importance of this general problem and the unfortunate results 
if it is not handled properly are now being recognized, and progress 
is being made in its solution, but there is still much slipshod work on 
the part of business concerns and research agencies in this field. 

A fourth general problem is to determine the terms of measure- 
ment of consumer acceptance of products. Degree of acceptance or 
consumers' attitude can be indicated in terms of absolute or compara- 
tive sales volume, in terms of data on statements of consumers in 
reference to products, or in terms of preference after comparison of two 
or more competing products. Decisions as to the type of data desired 
will largely indicate the method to be used. For instance, sales volume 
achieved will furnish some indication of whether consumers liked a 
product. Repeat purchases are an even better indication of product 
acceptance. Still, such testing will not furnish information on why 


consumers found the new product acceptable or whether they would 
find it even more acceptable if changes were made in its composition or 
appearance. Obviously, other factors, such as price, experience with 
other brands, and suggestions made in retail outlets, enter into the 
picture. Measurement of consumer attitude in terms of statements by 
those who participate in tests or in terms of indicated preference may 
first be needed. This may well be followed by measurement in terms 
of purchases by consumers in test markets, for a manufacturer can 
never be sure of the extent of consumer acceptance for his products 
until this sort of evidence is accumulated. 

Procedures Used in Pre-testing 

It was previously stated that consumer testing may be done at any 
of three levels; first, prior to the introduction of a product on the 
market; second, through preliminary introduction in test markets; 
and, third, as a checking-up device after a product has been on the 
market for some time. The first of these was called "pre-testing," the 
second, "preliminary market testing," and the third, "post- testing." The 
procedures which will now be discussed are used primarily for pre- 
testing, although certain of them may be used for post-testing likewise. 
They differ markedly in some respects but are similar in others. They 
differ in matters of location, size of the sample, composition of the 
sample, and terms of measurement, as well as in the manner in which 
information is secured. They are similar in that each procedure fur- 
nishes a jury or panel to test products. A number of these procedures 
will be considered in turn. 

Testing by Company Executives and Employees. — For many years 
this was the habitual procedure in testing products and is still widely 
used. A product may be submitted to a small group of departmental 
executives, including those from various departments, such as sales, 
purchasing, engineering, and research. In addition, top executives, 
such as the president of the company or the general manager, are often 
included. After examination of a new or improved product or actual 
consumption, as of food products, a decision is made either to put the 
product on the market without further change or to make changes 
which executives suggest. While it would not be doubted that effec- 
tive product changes have often been made as the result of testing by 
company executives, still this procedure is not an acceptable substitute 
for testing by an adequate sample of potential consumers. A group of 


company executives, by the facts of the situation, constitutes a limited 
sample of consumers and a highly prejudiced one. Familiarity with 
the company's products breeds preference. It would be difficult, if 
not impossible, for company executives to judge competing products 
in an entirely unbiased manner. Furthermore, the sample would not 
be of sufficient size, nor would it have the attribute of proportionality. 
In fact, the testing panel under these conditions would probably be 
composed of a few middle-aged or elderly men, whereas the potential 
market might be composed of women and children as well as men and 
of all age groups. A larger group of company employees, consisting 
of both sexes and all ages, would surely provide a better sample. If 
the company had employees in different parts of the country, so that 
geographical proportionality could also be achieved, a reasonably 
good sample might be secured. However, the simple fact that partici- 
pants in a test were company employees and therefore were very fa- 
miliar with the company's products and probably biased might like- 
wise lead to questionable results. While it should be recognized that 
testing by company executives or employees is probably less costly 
than other procedures, its use will probably give less accurate and de- 
pendable results. 

Testing under Observation in Homes and Offices. — This pro- 
cedure in testing has been very useful for consumer durables and office 
equipment. In one instance it was used by a large producer of electrical 
equipment for a portable sewing machine. This machine had been 
under development for two or three years. Prior to its introduction 
on the market, the company actually took the machine to a large num- 
ber of housewives and asked them to use it experimentally, to talk 
freely about its strong and weak points, and to make suggestions for 
improvements. The company representatives who supervised the ex- 
periments were carefully trained and by skilful questions were able to 
secure valuable information, which prompted certain changes in design. 
It might be argued with some justification that the housewife would 
not have sufficient time to examine the machine thoroughly and to 
use it for different purposes and with different types of material. How- 
ever, it is doubtful whether she would have any greater opportunity 
to test each make and model offered if she were actually in the process 
of buying a machine. First impressions are very important and often 
influence purchase even of consumer durables. In this particular in- 
stance the company thought that the tests by housewives were very 


The objections to this procedure are apparent, mainly the one of 
cost. Each interview required an hour or more and probably cost two 
or three dollars. For this product, geographical dispersion of the inter- 
views was not considered necessary, since conditions of use do not 
vary greatly in different parts of the country. However, if the product 
being tested required widespread interviews because of variation in 
use conditions, the cost of this procedure might be prohibitive. Valu- 
able information might be gained, nevertheless, even though there was 
not adequate proportionality in the sample of potential consumers in- 
terviewed, but the company could not be quite sure that the results 
of a survey would be accurate under these conditions. At times the 
reactions of consumers seem so essentially reasonable that little doubt 
may exist as to the similar reactions of other consumers if the product 
is likewise submitted to them. 

Testing in Retail Outlets, — At times products are placed in retail 
outlets, not for the purpose of immediate sale but for exposure to the 
public in order to secure consumer reactions to them. A company 
representative is placed in charge of the display to talk with the people 
who inspect the merchandise and to listen to their chance comments. 
This procedure usually requires the co-operation of independent re- 
tailers, but the need for such co-operation may be overcome if a com- 
pany establishes a few strategically located retail outlets — or "labora- 
tory stores," as they are frequently called — for testing both products 
and sales methods. Another variation of this procedure is to rent store 
space for a short period in order to conduct consumer tests. For in- 

A home appliance manufacturer developed a series of new models that he 
wanted to test among consumers. These new models were to be compared to 
similar types and models in competitive lines. Cities, towns and villages within 
their distribution areas were carefully selected for testing purposes. In each test 
area a vacant store was rented. Husbands and wives (this type of appliance is 
usually purchased by both man and wife) from statistically representative 
families were induced to visit the test store and state their type and model 
preferences. 9 

In this instance attention was paid to the adequacy of the sample, and, 
if the company representatives who talked with potential buyers in the 
stores were well trained and skilful in questioning, significant informa- 
tion should have been secured. 

9 Robert F. Elrick, "Blueprints for Testing New Consumer Products," Proceedings of 
the Special Wartime Conference of the American Marketing Association, Chicago, Novem- 
ber 30-December 1, 1944. 


Testing by Company Visitors. — For many years certain large com- 
panies in the United States, particularly the food companies, have 
submitted products for testing to company visitors. For example: 

Swift & Company has long maintained in its organization a market-research 
staff, one of whose functions is to investigate and to keep the company's produc- 
tion and sales executives informed of changes in consumer preferences. Under 
the guidance of this staff, information has been obtained from nearly 100,000 
consumers regarding the flavor, aroma, texture, appearance or tenderness of a 
great variety of foods such as ham, bacon, lard, shortening, butter, cheese, sausage, 
meat specialties and many others. 10 

The majority of these testers have been company visitors. After a tour 
through the stockyards and the company's packing plants, visitors have 
been asked to subject themselves to testing procedures and have will- 
ingly complied. While there may be some doubt as to whether they 
constitute a reasonably good cross-section of the general public, their 
numbers are sufficient to give validity to the sample. Furthermore, 
there is the opportunity at the home office to furnish adequate super- 
vision and control of the testing procedures — an advantage of par- 
ticular importance in the testing of food products, where taste percep- 
tion differs markedly among individuals and judgment on taste may 
be influenced by smell. 11 The problem of food testing is a complicated 
one, but important results have been secured. 

In one instance, it was revealed that a comparatively new Swift & Company 
product was less pleasing to consumers than other competing brands. After 
discovering the reasons, changes were made in the color, texture, and flavor, 
which not only caused it to be preferred by consumers in subsequent tests but 
also reduced its production cost. Since that time the sales of the improved 
product have increased rapidly. 12 

Testing by Consumer Panels or Juries. — First, it should be ob- 
served that company executives and employees, the clientele of retail 
outlets, and company visitors, when used for product testing as previ- 
ously indicated, constitute juries or panels. However, these people are 
selected entirely by chance or because of convenience rather than 
through a conscious attempt to make selections wisely. In contrast, 
here we are concerned with testing groups composed of individuals 
who are carefully selected as being representative of the potential 
market. A group may be selected for a particular test, or it may be a 

10 Donald R. G. Cowan, "Product Testing and Its Value to Business," Journal of 
Business of the University of Chicago, Vol, XI, No. 4 (October, 1938), pp. 349-50. 

11 Ibid. i2 md. 


continuing group. Many advertising agencies and individual companies 
have groups which may be called upon at any time to participate in 
product tests. 13 

Consumer juries are used for many different purposes. There are 
consumer juries designed for testing advertising copy, radio programs, 
and other promotional efforts. There are opinion panels of the fa- 
miliar type which are used for predicting results of political campaigns, 
the personal standing of people in public life, public attitude toward 
certain policies or administrative units of government, and other mat- 
ters. There is also the continuous purchase type of consumer panel 
which has created so much interest in recent years. Here we are con- 
cerned with consumer panels or juries only as a device for product 

The problem of selecting testers, obviated by the other pro- 
cedures, is a difficult one to solve. Testers must be potential consumers 
of a new product or actual consumers of an old product which is under- 
going change. Therefore, if the product to be tested is new in type, 
some determination will have to be made as to the characteristics of 
consumers, including purchasing power, who are probable potential 
buyers. This represents the unusual situation, however, for most prod- 
ucts are new only in the sense that they vary in design or appearance 
from some brand previously used. Generally, it is not a particularly 
difficult problem to determine what classes of consumers are likely to 
be potential buyers and to seek individuals from those classes for 
testers. However, to contact individuals in the classes wanted and 
to be sure that they constitute a reasonable cross-section of the poten- 
tial market present difficulties. If testers are solicited in advertising, 
only the most interested individuals are likely to reply. Names may 
be secured from chambers of commerce or other civic bodies or from 
the rosters of women's clubs, churches, parent-teacher associations, or 
other such groups. However, people who belong to these organizations 
may not be truly representative of the entire group of potential pur- 
chasers of a product. Home economics departments of schools and 

13 General Foods Corporation has a panel of approximately 10,000 active testers who 
can be called upon for testing purposes. Reliable results are usually achieved by using a 
group of from 500 to 2,000 individuals or families for any particular test. The larger 
number makes possible selection within the group. For instance, if a product ties in espe- 
cially with children's diets, people with young children can be selected for testing work 
or, if desired, testers only from rural areas or who use particular types of cooking facilities 
may be selected (see Marie Sellers, "Pre-testing of Products by Consumer Juries," Journal 
of Marketing, Vol. VI, No. 4 [April, 1942] ) . 


colleges have often been helpful, both in furnishing names and in 
arranging for group testing. 

People are often selected after personal interviews or by recourse 
to mail questionnaires. Lists of names may have been secured from 
the sources just mentioned, from telephone directories, or from the 
credit records of retail outlets. Either through interviews or through 
mail questionnaires it is possible to secure reasonably complete in- 
formation as to products in use and other environmental factors; per- 
sonal characteristics of family members, such as age and sex distribu- 
tion; experience, training, and employment of the principal family 
members; and an estimate of either individual or family purchasing 
power. Personal interviews provide more exact information but are 
more costly than the use of questionnaire techniques. More often 
than otherwise, the desire for greater representativeness in the jury 
yields to cost considerations, and, as a result, the jury selected does not 
represent a true cross-section of the potential market geographically, 
in purchasing power, or in other characteristics. Whether assuming 
additional cost in jury selection will yield a compensating advantage 
in a more representative jury is always a pertinent question. 

Another question, one on which there is much difference of 
opinion, arises in the selection of consumer juries. A fully representa- 
tive jury is difficult to secure. Perhaps a jury composed of individuals 
who come from the most interested, thoughtful, and experienced part 
of the potential market will provide more reliable information on the 
acceptability of products than will a fully representative jury. There 
is some indication that certain members of a community lead in the 
adoption of new and improved products and that others follow. This, 
of course, questions the validity of the concept of representativeness 
in the selection of a consumer jury. For instance, the General Foods 
Corporation panel was originally selected from members of its radio 
cooking-school mailing list, which, in turn, included women who had 
written in voluntarily and registered in the school to secure recipe 
bulletins. They were self-selected and therefore did not necessarily 
represent a cross-section of the potential market. Nevertheless, they 
were in all probability interested in cooking as an art and in new food 
products. Thus it might be expected that they would be leaders in such 
activities in their communities. Furthermore, they could be expected 
to co-operate more fully and to follow instructions more closely than 


could a more representative cross-section of the market. The conclu- 
sion probably most warranted is that, in some instances, a truly repre- 
sentative panel would be needed, perhaps in a final test of a product 
just before it is placed on the market. In other instances, a panel 
comprised of people in the upper levels of interest, training, and ability 
might be preferred. It is interesting to note that both types of panel 
are frequently used to test the same product. The food companies, 
for instance, often use both their own panels and those of their ad- 
vertising agencies, which are likely to be less biased and, perhaps, 
more representative of the potential market. 

There is much interest and likewise difference of opinion in regard 
to whether a continuing panel can be justified. It is argued that the 
members of a continuing panel shortly assume a professional attitude 
and become too highly analytical in their judgments. A continuing 
group may therefore become less and less representative of the po- 
tential market as time goes on. Furthermore, they may become en- 
thusiastic supporters of a company's products and therefore unable to 
judge products in an entirely unbiased manner. Over the same time 
period, however, they may become more and more interested and 
willing to follow instructions carefully and thus may provide more 
accurate information. Moreover, the cost involved in securing new 
juries for each product test would be substantial, if not prohibitive. 
The best results are probably achieved by careful selection initially 
of a relatively large group of consumers for testing purposes, thereby 
making possible the selection within the group for tests of particular 
products. Members of the larger group would then be used sufficiently 
infrequently so that they would not assume a professional status. 
Furthermore, in those cases in which tests by the continuing group 
were relatively inconclusive, a group outside might be selected either 
to confirm or to deny the conclusions previously reached. 

Another problem of panel administration is to secure the proper 
measure of control and supervision in the experimental use of products 
by testers. Some people in the field of product testing are very doubt- 
ful about the results achieved from unsupervised tests in homes. They 
prefer to have tests conducted under organized supervision, but then 
it is necessary to get the testers together as a group. For instance, a 
women's club may be selected and a company representative may 
supervise testing of a product by all members of the club simultane- 


ously or, perhaps, consecutively. 14 Such testing may be carried on in 
different parts of the country in order to attain some measure of rep- 
resentativeness in the sample. Much can be said for this procedure 
when the conditions necessary for the test are exacting; however, it 
is a costly procedure, and its possibilities are thus limited. More fre- 
quently, a product to be tested is sent, together with detailed instruc- 
tions, to the panel members, and the test is conducted under normal 
environmental conditions without supervision. Whether the results 
are reasonably accurate depends upon the co-operativeness of the testers 
and whether the instructions are so carefully prepared that they can be 
followed without difficulty. Still, there can never be complete assur- 
ance that the instructions are followed. If the test is not a particularly 
difficult one, this method may produce reasonably reliable results. 
They are more likely to be reliable if the testers are in the upper strata 
of experience and native intelligence. It is less difficult to get informa- 
tion from a truly representative sample of testers under this procedure, 
and it is likely to be less costly than group testing under supervision. 

Preliminary Market Testing 

Preliminary market testing, our present concern, is a form of con- 
sumer testing, but the procedure varies substantially from those previ- 
ously outlined. Instead of placing a product in the hands of a selected 
body of consumers for observation or experimental use, the product 
is placed in retail outlets for actual sale, and sales volume then fur- 
nishes the clue to whether consumer acceptance has been attained. 
Three principal procedures in preliminary market testing are used: 
that is, sales in test markets of a single product; sales of two or more 
designs of a given product to determine consumer acceptance for each 
and the probable distribution of sales among them if all are placed 
on the market; and the use of test lines. 

Market Testing of a Single Product. — When a manufacturer has 

14 In the consumer testing of durable goods, at times photographs, ordinary stereopticon 
slides, and stereograms (three-dimensional pictures) have been substituted before testing 
groups for the product itself. The expense incurred in testing is thereby reduced and 
substantially so if tests are conducted in different sections of the country. While exposure 
of the product itself would provide a more adequate basis for an expression of consumer 
preference, still pictures may be an acceptable substitute. Pictures and illustrations have 
likewise been used very effectively in mail questionnaires. The Customer Research Staff of 
General Motors Corporation has used them for both pre-testing and post-testing. Many 
style features or mechanical contrivances on which respondents are asked to express their 
attitude have been on cars previously, but others are contemplated innovations on which 
public response is desired prior to a decision on their introduction. 


either a new product or a redesigned product ready for the market, 
he may, as a final precautionary step, introduce it in test markets 
before giving it widespread distribution. He may have pre-tested the 
product carefully and be reasonably sure that it will prove acceptable 
to consumers. However, in view of the capital commitment needed 
for physical distribution of the product over the market and for pro- 
motional efforts, he may feel that no opportunity should be overlooked 
to test his products before final distribution in the national market. 
Therefore, caution may dictate initial introduction of the product in 
test markets. 

The first step is to choose test markets wisely. Each market selected 
should, as far as possible, be representative of the entire potential 
market, or if the tests are to be conducted in a number of cities, they 
as a group should adequately represent the entire market. Either the 
single city or the group should have about the average level of pur- 
chasing power, well-diversified industries, the proper balance of 
demand between industry and agriculture, and a reasonably average 
admixture of racial groups. It is considered preferable to select cities 
which are somewhat isolated. They should not be too greatly affected 
by larger shopping centers near by in which purchases are customarily 
made. Test cities have been found more workable if they are compact, 
if they have good stores, and if their merchants are co-operative. What 
is needed is a truly representative sample of the entire potential market, 
but cost considerations frequently interfere and dictate a less adequate 
sample and thus lessen assurance of accurate results. 

In order to use test markets effectively, a product must be fully 
developed as to size, shape, and packaging. It must have a brand 
name likewise, and be accompanied by the usual promotional mate- 
rials, such as window displays and other dealer helps. In other words, 
a product must be sold under normal competitive conditions in retail- 
ing or jobbing establishments. If testing is done in this way, confidence 
can be placed in sales data as evidence of consumer acceptance of the 
product. An illustration is furnished by the market- testing procedures 
of the New England Confectionery Company. 15 Testing is done in 
retail stores under the direction of company detail men. An attempt 
is made to expose a product to a representative sample of consumers. 
Stores of all types that retail candy are used — for instance, those in 

15 M. S. Sullivan, "A Lulu or a Dud? Necco Pre-tests Every New Item To Find the 
Answer," Sales Management, Vol. XLIII, No. 5 (September 1, 1938), p. 25. 


suburban districts, school neighborhoods, shopping centers, and resi- 
dential areas. Dealers are asked to participate in the test and are given 
free merchandise throughout the test period. Jobbers are notified so 
that they will not think that the company is modifying its policy of 
selling only through jobbing outlets. Tests are conducted for from 
four to six weeks. During the test period, detail men spend several 
hours a week in the stores, those hours in which candy sales are con- 
centrated. Often the detail men act as salesmen. Retailers are asked 
to determine whether each sale is a first sale or a repeat sale, and 
records are kept on each type over the test period. If, at the end of 
the test, sales data indicate that repeat purchases have been substan- 
tial, that the product has sold well in relation to established brands, 
and that there is no objection on the part of retailers or consumers 
to its appearance or packaging, the company feels that it can go ahead 
with wider distribution with reasonable assurance of success. Tests 
such as these in retail outlets may be followed by testing of sales 
through jobbers. Repeat purchases by retailers from jobbers then 
furnish the clue as to whether the product has received a reasonable 
measure of consumer acceptance over wider areas. After market testing 
of this character, preliminary estimates of sales in the national market 
usually check within 5 per cent of the actual totals realized. 

If the response of consumers in market testing of a product is 
unfavorable or even inconclusive, if doubts still linger as to whether 
a product will ultimately sell in sufficient quantities to be profitable, 
then backtracking is in order to determine the cause of its failure. 
Clues may have been secured from dealers or from chance comments 
of purchasers in the retail test outlets. The fault may lie in the product 
itself or in its packaging. It may have been overpriced in relation to 
competitive products. In any event the market through testing pro- 
cedures has given its answer, and the manufacturer must again engage 
in designing and pre-testing in an attempt to secure a product which 
will have a combination of qualities that will more greatly appeal to 

Market Testing of Styles or Designs. — Manufacturers have fre- 
quently conducted experiments in retail outlets in order to secure con- 
sumer reaction to different styles or designs of a product. Suppose, for 
instance, that a manufacturer of compacts or electric clocks wished 
to determine which of a number of styles, colors, or designs would 
prove most acceptable to consumers or what the likely distribution 


of sales among them would be if all were placed on the market. Such 
information would prove most useful as a guide to selection by the 
manufacturer of a few among many models, likewise as a guide to 
production for inventory prior to a heavy seasonal demand. Stock 
would need to be accumulated to meet anticipated demand, and too 
few or too many of different models might result in lost sales, mark- 
downs, and thereby reduced profits. Thus any information which 
would aid in the selection of those models which would be most desired 
by consumers and which would lessen the likelihood of errors in pro- 
duction for inventory would be welcomed. 

The procedure is to place the various models actually on sale in 
retail outlets. As it constitutes an experiment, control and supervision 
are necessary; for instance, each model must be given an equal oppor- 
tunity for purchase. If some models are more adequately displayed 
than others; if retail sales people, because of their own preference, 
either consciously or unconsciously influence consumers to buy one 
model rather than another; if insufficient stocks are present of some 
models at times, so that choice is restricted; if price is not uniform or 
if the differences in price do not accurately represent differences in 
cost; or if other extraneous factors which would influence purchases 
are not controlled, there can be little confidence in the information 
given by relative purchases as a guide to consumer acceptance. The 
problem is to hold all factors constant other than the differences in 
the models being sold. This, it will be recognized, is no simple task. 
Nevertheless, to the extent that this can be done successfully, pur- 
chases will be a true reflection of consumers' attitude toward the 
products being tested. 16 

If a test is conducted in but one store, the results will reflect only 
the attitude of the type of consumers which patronize that store. This 
seems obvious, but, as previously mentioned, it is frequently not recog- 
nized. Patrons of a particular store may or may not constitute a true 
cross-section of the market for a particular product. In all probability, 

16 The annual automobile shows before the war provided a testing ground for new 
styles and designs. The distribution of the orders taken at the shows as between various 
models and other evidences of the interest which newer models aroused in the public mind 
were watched closely by company executives and furnished a rough guide for later produc- 
tion. In one particular instance, an automobile company seriously considered the with- 
drawal of a whole line of cars from the market after the evidence accumulated at the 
automobile shows indicated that the changes made in the line had been too drastic and, 
therefore, would not secure public acceptance. Minor changes in models have frequently 
been made in the past on the basis of evidence secured as to degree of public acceptance 
for them at the automobile shows. 


testing will have to be done likewise in other types of retail outlet and, 
perhaps, in different sections of the country as well. The problem of 
validity and proportionality in the sample of consumers subjected to 
the test must always be given due consideration, but significant infor- 
mation on consumer preferences can often be secured from relatively 
few sales. 

The Use of Test Lines. — This procedure was mentioned briefly in 
an earlier part of this chapter. Manufacturers of goods which have 
a marked style element or in which technical innovations are frequently 
made do not wish to jeopardize their markets through departing too 
greatly from accepted forms or patterns. If they are doubtful as to 
whether a substantial change in their product will be acceptable to 
consumers, the change is likely to be made in an unimportant part of 
a manufacturer's line initially for testing purposes. The use of the 
product idea in this manner might be characterized as a "trial balloon." 
The manufacturer may feel that the reaction of consumers cannot be 
known until at least a certain portion of them has actually tried the 
product. If the innovation is a significant one, the reactions of con- 
sumers who try the product will soon become known to other poten- 
tial consumers through word-of-mouth advertising. 

This procedure has been used customarily in the past by the auto- 
mobile companies. Innovations such as air-flow bodies, push-button 
gear control, and free-wheeling have been placed on secondary lines, 
such as the Oldsmobile and the De Soto, rather than on the Buick 
and the Chrysler. A like practice has been used in relation to food 
products and less frequently in the drug and cosmetic field. A variation 
in an accepted product may first appear in less known brands of a 
particular company or, perhaps, even in unbranded merchandise. Con- 
sumers are then induced to use the product through price appeal, longer 
discounts to retailers, point of sale advertising, or other such devices. 
Sales are then carefully noted, and, if the product innovation attains a 
reasonable measure of consumer accteptance, it may later be incor- 
porated in the principal brand and followed by strong promotional 


If any product has been on the market for some years without 
change in its design or packaging, the likelihood is that competing 
products have outdistanced it in the race for consumer preference. It 


cannot be otherwise, except under exceptional circumstances, for 
changes in the number and quality of raw materials available, the tech- 
niques of manufacture, and the desires of the market form a constantly 
shifting pattern which must be reflected in product changes if a manu- 
facturer's relative position in the market is even to remain static, to 
say nothing of improving. Business experience has amply proved that 
it is possible for a manufacturer to overstay his market for certain 
qualities or designs of product. The Ford Motor Company's experience 
in the late twenties is a case in point. The market for a passenger car 
like the Ford which stressed utilitarian characteristics had dwindled 
appreciably, and other makes which stressed style characteristics had 
made substantial inroads into Ford's share of the market. If a manu- 
facturer fails to improve his product, he can lose quickly even a pre- 
eminent position in the market, and his financial losses resulting there- 
from may be very substantial indeed. Thus old products need periodic 
retesting to enable the manufacturer to anticipate changes in relative 
demand and, if these changes are likely to be unfavorable, to counter- 
act them in advance by attention to product development. 

The market is continually testing products, and some specific infor- 
mation on consumer acceptance is thus furnished by sales data, par- 
ticularly by the trend in sales. More accurate information as to a 
company's position in the market is furnished by the trend shown in 
its proportion of total sales of a given product or class of products. 
This presumes, of course, that data are readily available on total sales 
or that reasonable estimates can be made of the sales of competitors. 
Relative position in the market at any one time is a reflection of 
numerous factors in addition to consumer acceptance, among which 
are inertia to a change in buying habits, promotional efforts, and 
accessibility of the merchandise to purchasers. But neither inertia nor 
promotional efforts are a full or continuing protection to inferiority of 
product. A lack of acceptability is something which can be remedied 
by the action of competing manufacturers. In any event, evidence of 
position in the market at any one time secured from sales data does 
not indicate why one product is preferred over another. This informa- 
tion, supplementary to sales data, must be secured through testing 
procedures, either of an experimental character or of a survey character. 

Experimental procedures briefly discussed in relation to pre-testing 
can be used for testing old products likewise. Post-testing may also 
be accomplished by the use of consumer interviews or mail question- 


naires. In order to use these procedures, it is necessary for the product 
to have been in habitual use by the consumer or for him to have been 
influenced by word-of-mouth advertising, promotional activity, or ob- 
servance of the product in homes or retail outlets. Whether a consumer 
has actually used certain products, such as consumer durable goods, 
or otherwise, it is likely that he will have some ideas as to the quality 
of competing brands, and these ideas are of importance to the manu- 
facturer, as they may constitute the motivation for later purchase. First, 
we shall consider briefly experimental procedures in the post-testing of 
products and later the use of interviews and mail questionnaires as 
alternative procedures. 

Experimental Procedures. — Experimental procedures have frequent- 
ly been used to determine the relative merit of an old product in rela- 
tion to newer products. A simple blind test to determine preference 
may be most revealing. An illustration is furnished by a test between 
an old product which had been on the market for many years and 
newer products of like type. 17 The older product had continued to hold 
a dominant position in the market because of long-sustained promo- 
tional effort and accumulated consumer good will. However, recog- 
nized improvements in competing brands raised the important question 
as to whether the old brand retained its lead because of equal or supe- 
rior quality or only because of the factors previously mentioned. When 
these brands were subjected to a blind test through a removal of labels 
and other distinguishing marks, only one-quarter of the votes were cast 
for the old product. 18 The outcome of this test strongly indicated that 
the old product was in a vulnerable position in the market. Competing 
manufacturers through promotional efforts such as the distribution of 
samples or free deals might be able to get consumers to try their 
brands. Repeat purchases induced thereby might redivide existing 
demand in their favor and thus prejudice the position of the dominant 
brand in the market. Consumer acceptance as indicated by purchases 
of the old brand could not be maintained indefinitely and at a reason- 

17 This illustration is taken in part from Donald R. G. Cowan, "Product Testing and 
Its Value to Business," Journal of Business of the University of Chicago, Vol. XI, No. 4 
(October, 1938). 

18 There is always some possibility in a test of this character that the respondent will 
recognize a certain brand because of habitual use even though distinguishing marks have 
been removed and vote for it as a result of such recognition. In this particular instance, 
the old product was so widely used that the results of the test may have been prejudiced in 
its favor. This factor further illustrates the difficulty of so arranging and supervising tests 
that biased results will not appear. 


able promotional cost if newer competing brands were, in fact, of 
superior quality. The manufacturer in this particular instance pro- 
ceeded at once to improve his product. Buyers for some time subse- 
quently were offered both the old and an improved new product under 
the same label. Advertising and other promotional efforts were shifted 
to the improved product in order to convert consumers to its use. 

The virtues of the experimental approach to product testing can- 
not well be overstated. Experimentation under controlled conditions 
always drives out more empirical research methods where conditions 
are such that it can be used. Other methods, soon to be discussed, are 
much more likely to result in biased answers from a less controlled 
sample of respondents. However, it would be much more difficult, if 
not impracticable, to conduct an experiment of the type just outlined 
on automobiles or other durable goods. The distinguishing character- 
istics of many consumer durables are well known by consumers, and 
concealment for purposes of a blind test would not be possible. Wher- 
ever the experimental method can be used, however, it will be more 
likely to give accurate information on consumer attitude toward com- 
peting products than will any other procedure. 

Interviews with Dealers or Consumers. — Something has been said 
previously about the use of trained interviewers in securing information 
on consumers' attitude toward products. It is a costly method, particu- 
larly if a manufacturer attempts to secure information from a truly 
representative sample. Nevertheless, if interviewers are well trained 
and are thus able to get unbiased answers from consumers, the quality 
of the information secured is better than through the use of any other 
survey method. The key to this procedure is in the selection and train- 
ing of interviewers. All too frequently in the past, manufacturers and 
research agencies have sent interviewers into the field without the 
proper personal requisites or the necessary degree of previous training 
or instruction. As a result the information secured was not truly repre- 
sentative of the real attitude toward products on the part of consumers 
or dealers. 

It is recognized, for instance, that first answers to an interviewer's 
questions are often incorrect and are substantially modified after further 
deliberation by the respondent. Both a carefully planned approach and 
conversational adroitness are needed if the respondent's real attitude 
toward competing products is to be discovered. The interviewer must 
be most careful not to create bias in the response through suggestions 


or improperly worded questions. Many interviews are conducted too 
hurriedly. Sufficient time is not taken to get at the truth. The inter- 
viewer must also recognize that some respondents lack knowledge of 
the products under investigation and that their replies are of no signif- 
icance. It can be said without much fear of contradiction that the 
quality of personal interviews for product testing is much more impor- 
tant than the quantity, despite the need of representativeness and 
validity in the sample. Quality of interviews is largely a matter of 
training and instruction of interviewers. The use of a questionnaire 
for guidance of the interviewer, even though it is not filled out until 
after the interview is over, often proves most helpful. While improve- 
ment in the selection, training, and instruction of interviewers has 
undoubtedly been made, still there is no single feature of testing by 
survey methods which needs more attention on the part of research 

The question arises as to whether interviews with dealers are an 
effective substitute for interviews with consumers. The answer to this 
question is of importance, for, if a dealer knows the attitude of his 
customers toward products and can thus furnish a consensus, the same 
information can be secured through the dealer at less cost than directly 
from consumers. While dealers are in frequent contact with consumers 
and do accumulate information through their chance comments when 
purchasing, nevertheless, it is very doubtful whether dealers can furnish 
an accurate statement of the attitude of their customers toward compet- 
ing products. Most sales are made by clerks and, particularly for food 
purchases, self-service in supermarkets has assumed additional impor- 
tance. There is also little opportunity for the dealer or his employees 
to secure information on the reasons for consumers' preference when 
orders are taken over the phone or by mail. Dealers do know consumer 
preferences as indicated by relative sales volume, but whether they 
know in the majority of instances just why certain brands are purchased 
rather than others is open to question. Wholesalers are further removed 
from direct contact with consumers and are thus of relatively little 
value for product testing. 

Use of Mail Questionnaires. — The mail questionnaire survey has 
probably been used more frequently in the past than any other pro- 
cedure for eliciting information on consumers' reaction toward prod- 
ucts. More often than otherwise, each survey of this type has secured 
information on factors which influence consumers in purchasing, pur- 


chasing habits, location and type of retail outlet from which purchases 
are made, and various other matters of interest to the sales executive. 
Investigators have usually attempted to get too much information 
through each survey and thus have prejudiced the attainment of more 
limited objectives, such as this one of consumers' attitude toward prod- 
ucts. The why question in regard to product attributes as an influence 
to action in purchasing — our main concern in this discussion — might 
well be the only objective of a survey, for its importance is sufficiently 
great to merit individual attention. 

While the investigator may be interested only in the consumers' 
attitude toward a single brand, in the majority of cases he is interested 
in attitude toward all directly competing brands. In other words, he 
wishes to know why the consumer purchases one brand rather than 
another and, if the reason lies in the nature of the product itself rather 
than in other factors, what product characteristics were chiefly respon- 
sible for inducing purchase. Thus the investigator by appropriate 
questions must first determine whether product characteristics had any- 
thing to do with purchase by the consumer. It might be doubted 
whether a negative response would be at all likely; however, in some 
instances, the consumer might believe that there was no substantial 
dissimilarity between different brands of certain products. In that event 
choice might be dictated solely by convenience in purchase. While the 
complete motivational pattern which results in purchase of one brand 
rather than another is difficult to determine by the use of mail question- 
naire, still worth-while information can be secured on product likes and 
dislikes and their relative importance as influences on the purchaser by 
this survey procedure. 

There are numerous advantages in the use of mail questionnaires. 
The bias often engendered in personal interviews is avoided. Response 
can be secured from a large number of respondents widely scattered 
throughout the national market and at a reasonable cost. 19 Regardless 
of the location of the respondent, the cost of reaching him does not 
vary. Names can be secured from city directories, telephone directories, 
rosters of clubs and associations of diverse character, and many other 
sources. While there is less opportunity consciously to select particular 

19 There is considerable expense involved in either the interview or the mail question- 
naire procedure. There has been some doubt as to which was the least costly, all factors 
considered. In view of the recent substantial increase in the cost of interviews, however, 
the cost advantage probably lies with mail questionnaires. The cost must, of course, be 
related to both the quantity and the quality of the information secured. 


respondents, selection among broad groups is relatively easy. For in- 
stance, distribution can be controlled as between people engaged in 
industry and agriculture; urban, rural, and small-town inhabitants; 
people in areas with different climatic conditions; and other such broad 

The nature of the sample can likewise be controlled in some meas- 
ure by the use of questions which elicit information on age, sex, occu- 
pation, and economic status of the respondent and ownership of durable 
goods. If enough responses are secured, the distribution may take place 
after they are received. Questionnaires would be discarded which were 
filled out by people who could not reasonably be considered as poten- 
tial buyers of the product under investigation or whose background and 
experience did not provide the necessary information to answer the 
questions intelligently. After discarding these questionnaires a suffi- 
cient number might still remain to attain validity in the sample both 
for the total universe and for the important minor universes. While 
it is recognized that the respondent may give incorrect information 
and that it is usually impracticable, if not impossible, to check up on 
each individual, nevertheless, some improvement in the sample may be 
secured by this procedure. Admittedly, the sample would be improved 
if only the right type of respondent were selected initially, but this is 
very difficult to do other than through the personal interview method. 
Even then errors are made in selection, but the interviewer can, through 
personal observation and questions, correct the sample. A similar oppor- 
tunity is not afforded in the mail questionnaire procedure. 

The latter procedure has definite limitations, some of which have 
been mentioned. There always is doubt about the representativeness 
of the sample. Less information can be secured effectivly than through 
personal interviews. Skilful interviewers can obtain information which 
would not be reported accurately in mail questionnaires. For instance, 
a comprehensive report on the motivation behind the purchase of an 
expensive unit of home equipment could not be secured through a mail 
questionnaire. The effectiveness of the method depends in large part 
on the clarity with which the questions are stated, the order in which 
they are asked, and their essential reasonableness in the light of the 
probably training and experience of the respondent. Every effort must 
be taken in the preparation of questionnaires to avoid possible misin- 
terpretation, for there is no opportunity for immediately placing the 
respondent back on the right track as in the personal interview method. 


Suffice it to say that there is much opportunity in questionnaire con- 
struction for the exercise of skill, resourcefulness, and imagination. It 
is not a task for amateurs and, if undertaken by them, will probably 
result in misinterpretation of questions by the respondent and likewise 
in a lower proportion of responses from the questionnaires initially 

Many errors are avoided in the construction of mail questionnaires 
by preliminary testing before they are distributed to the entire sample 
selected. Such testing of questionnaires has become almost habitual on 
the part of many marketing-research agencies. Questionnaires are sent 
or even presented by interviewers to a limited number of respondents 
in order to determine whether their training, experience, and native 
intelligence are such as to provide the basis for answers; whether they 
have difficulties in interpretation; and whether the questions are listed 
in the best order for ready response. If the test reveals weaknesses, 
the questionnaire is revised and, perhaps, even tested again in order to 
make sure that it will be effective as an instrument for securing desired 
information when it is submitted to all individuals included in the 

Final Comments 

The foregoing discussion of product and market testing may leave 
the impression that it is a universally accepted tool of management — 
a part of a definitely formulated policy regarding product development. 
This impression is justified at least in part, for all companies do some 
technical testing as a necessary condition of manufacture in order to 
attain uniformity in output. They may go a step further by hiring an 
independent commercial laboratory to make periodic checks of their 
merchandise to see whether uniformity is being attained. Analysis 
testing of the product of competitors and performance testing under 
simulated conditions of use of both their own products and those of 
their competitors may also be a periodic task dictated by company 
policy. Moreover, all companies are keenly aware of trends in sales 
volume both in the absolute and in relation to competitors' sales. If 
trends are unfavorable, steps are taken to find out the reasons therefor. 
This information may be revealed by technical testing or by consumer 
testing of one type or another. Thus it is evident that all manufactur- 
ing companies do some product and market testing. Even distributive 
agencies may engage in such activities in order to be sure that the 
products which they sell have merit and will be acceptable to their 


customers. There is, nevertheless, a substantial variation as between 
both producers and distributors in the extent of their activities of a 
testing character. Some concerns, particularly in the food and the tex- 
tile industries, go through the whole gamut of testing — pre-testing, 
preliminary market testing, retesting of units of product which have 
been returned by purchasers for adjustment, and periodic post-testing. 
Other concerns, in contrast, may do a minimum of testing work. 

The reasons for variation in the use of testing procedures may be 
found in part in the nature of the product. While these procedures can 
be used effectively for almost any type of merchandise, still they have 
been used more frequently by manufacturers of branded food products, 
certain drug items, cosmetics, textiles and wearing apparel and for con- 
sumer durables, such as automobiles, sewing machines, furniture, and 
refrigerators. Some of these products have a style element, and all lend 
themselves to innovations which may secure for them a greater measure 
of consumer acceptance. Even when the style element is not present or 
is relatively unimportant and innovations in a product offer little oppor- 
tunity for competitive advantage, the need for uniformity may provide 
the motivation for testing. However, for a standardized product with 
known and limited utility, one in which complete uniformity can be 
achieved in manufacture, there is comparatively little need for product 
and market testing. 

Other factors which influence the extent to which product and 
market testing are used by management are the degree of risk involved 
in the introduction of a new or an improved product, the cost of test- 
ing, and the timing of product introduction. Executives may have little, 
if any, doubt about the eventual success of a product, even though it 
has not been pre-tested by consumers or first sold in test markets. Or, 
in contrast, pre-testing may indicate the likelihood of a substantial 
degree of consumer acceptance for a product, and then preliminary 
market testing may be considered unnecessary. Sales data may strongly 
suggest that competing concerns have not been successful in the im- 
provement of their products and, therefore, that post-testing is not 
immediately essential. Small concerns may have insufficient financial 
resources to engage in testing activities and therefore are forced to incur 
additional risk. 

Testing is a time-consuming procedure which may have the effect 
of withholding products from the market for several weeks or even 
months. Such a delay may jeopardize a company's competitive position. 
Considerable importance is attached to priority in the introduction of 


new products on the market. Company executives may feel that the 
losses which may be incurred by placing on the market a product which 
is not fully tested will be more than compensated for by the fact of 
introduction prior to like action by competitors. In one instance, the 
manufacturer of a new consumer durable good placed his product on 
the market under a warranty of full satisfaction before the product was 
technically perfected. The resultant cost of replacing or repairing defec- 
tive units was substantial. The manufacturer probably incurred some 
consumer ill-will, but this may have been dissipated by performance 
under the warranty. Whether a manufacturer actually secures a com- 
petitive advantage by a hasty procedure of this character is highly con- 
jectural. He may secure a temporary advantage by being first on the 
market, but, as an offsetting factor, consumers may continue to doubt 
the quality of his products for some time afterward. In the long run 
it is probably better to develop a sound product before introduction on 
the market, and this usually involves product and market testing. 


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p. 52. 

Chapter V 

AFTER the physical characteristics of the product itself have been 
determined, the next stop in planning for many products is con- 
cerned with branding, packaging, and labeling. In fact, it may be 
argued that a product is not completely produced until it is placed in 
the form in which it will arrive in the hands of the final consumer. For 
most products, certain utilities which are important to users have not 
been created until the product has been branded, packaged, and labeled. 
A brand or other identification gives assurance as to quality and infor- 
mation as to the source of supply. A package also helps to identify a 
product with its source and, in addition, protects the product and thus 
gets it to the consumer in good condition. Labels, in turn, not only 
help to identify products but may furnish information on how they 
should be used and cared for. 

This triumvirate of branding, packaging, and labeling has been 
accorded considerable attention in recent years because of fundamental 
changes in the American economy. The shift in population from rural 
to urban areas; the higher standard of living which permits a greater 
variety of purchases and allows purchase of products in containers, even 
though the price is thereby increased; better transportation and com- 
munication, which give assurance of supply even though purchases 
are made in smaller quantities; and other significant changes all have 
had their effect on preparation of the product for presentation to the 

In the last two decades there has been much agitation about the 
need for consumer protection and consumer education. As a result, 
questions which relate to the significance of brands and the information 
given on labels have been much discussed. The so-called "consumer 
movement" has had a pronounced effect on manufacturers' policy in 
regard to branding, packaging, and labeling. Finally, and of greatest 
importance, these three are an integral part of the manufacturer's 
attempt to control his market through to the final consumer or, other- 
wise stated, to become independent,, as far as possible, of the distributors 
of his merchandise. Of course, he may still use wholesalers, retailers, 
and other intermediaries, but he is not at their mercy if he is producing 
a branded, packaged article for which consumer demand has been cre- 



ated through advertising and other promotional efforts. Increased 
control of the market by manufacturers, as opposed to control by dis- 
tributors, has been the most significant tendency in the field of marketing 
in the twentieth century. Perhaps this tendency is now being reversed 
through the private-brand activities of the large chain-store companies, 
department stores, and mail-order concerns. Still, in the struggle for 
market control it is evident that branding, packaging, and labeling play 
a major role for both the manufacturer and the distributor, as they are 
means by which control is achieved. This chapter will be concerned 
with problems and policies in regard to brands and trade-marks, and 
immediately succeeding chapters to packaging and labeling. 

Brands versus Trade-Marks and Other Marks 

Prior to a discussion of more substantive questions pertaining to 
brands and trade-marks, it is necessary briefly to consider matters of 
terminology. It is particularly necessary in view of the recent passage 
of the Lanham Act. 1 There are many terms used interchangeably in this 
field, among them "brand," "brand name," "trade-mark," "trade-name," 
and even "company name." The terms "brand" and "trade-mark" are 
often used in the same paragraph without any apparent distinction as 
to meaning. Perhaps in common parlance it is not necessary to distin- 
guish between them, but the student of marketing on occasion should 
do so. The term "brand" is the all-inclusive term, whereas the other 
terms have more particularized meanings. A brand may be defined as 
any letter, word, name, symbol, or device or any combination thereof 
which is adopted and used by a manufacturer or merchant to identify 
his goods and services and to distinguish them from those manufac- 
tured, sold, or, in the case of services, performed by others. 2 When 
capable of being spoken, these letters, etc., constitute a "brand name," 
even though the combination of letters previously had no significance 
in language. Consider, for instance, the brands Spam, GE, Keds, and 
Duz. A brand name may be a company name. "Swifts" is the brand 
name for certain meat products. "Crisco," in contrast, is the brand 

1 Public Law 489 : AN ACT To Provide for the Registration and Protection of Trade- 
Marks Used in Commerce, To Carry Out the Provisions of Certain International Conven- 
tions, and for Other Purposes (Lanham Act; H.R. 1654), US. Statutes 1946 (79th Cong., 
2d sess.) (Washington: Superintendent of Documents, 1947), chap. 540. This Act was 
approved on July 5, 1946, and went into force on July 5, 1947. 

2 For definitions of brands and trade-marks and other terms pertaining to them see 
"Consolidated Report of the Committee on Definitions of Marketing Terms," National 
Marketing Review (now the Journal of Marketing) , Vol. I, No. 2 (fall, 1935), p. 148; 
sdso the Lanham Act, Public Law 489, Title 10, "Constructions and Definitions." 


name for a particular product produced by the Procter & Gamble 

"Brand name" and "trade-name" are usually considered as synony- 
mous terms, perhaps unfortunately, for the term "trade-name" is often 
used in a broader sense as referring to a product type rather than to a 
specific item of that type manufactured by a single concern. The term 
"brand" is a business term; the term "trade-mark" is its legal counter- 
part. The Lanham Act seldom, if ever, mentions brands, although it 
obviously is concerned with them. This indicates that the term "trade- 
mark" is essentially a legal term but that it has the same general conno- 
tation as the term "brand" when applied to goods. A distinction can 
be made between a brand which will be given legal protection either 
because of registration or because of priority in use and one which, for 
one reason or another, is not capable of exclusive appropriation. This 
is a useful distinction but not one which fully resolves the question as 
to the distinction between brands and trade-marks. The Lanham Act 
in Title I, Section 2, speaks of trade-marks which shall be refused regis- 
tration. Therefore, according to the Act, the term "trade-mark" is not 
confined to brands which can be registered but likewise includes those 
which are not subject to registration. While there may be other more 
valid bases for distinction between the two terms, the conclusion is 
apparently justified that they have the same essential significance when 
applied to goods but that one is a business term whereas the other is its 
legal counterpart. 3 

The term "brand" covers other marks in addition to trade-marks. 
The Lanham Act distinguishes three other marks : the service mark, the 
certification mark, and the collective mark. The Act provides that 
marks used to identify services, although not affixable to a product, will, 
nevertheless, be subject to registration and protection by law. The Act 
defines a "service mark" as "a mark used in the sale or advertising of 
services to identify the services of one person and distinguish them from 

the services of others " 4 The Act defines a "certification mark" as 

"a mark used upon or in connection with the products or services of 
one or more persons other than the owner of the mark to certify regional 

3 In speaking of a brand, businessmen may use the term as synonymous with a com- 
pany's product. For instance, the statement "We have the best brand on the market" might 
be made. The statement "We have the best trade-mark on the market" would not be made 
with the same promotional objective in mind. The term "brand," as used in the first 
instance, refers to the product itself while, in the second instance, the term "trade-mark" 
refers to the mark and that only. 

4 Public Law 489. 


or other origin, material, mode of manufacture, quality, accuracy or 
other characteristics of such goods or services or that the work or labor 
on the goods or services was performed by members of a union or other 
organization". 5 This mark includes the seals of approval furnished by 
publications, professional associations, and research laboratories. In 
many respects the certification mark has the important characteristics 
of the service mark, for the only thing which the owners of the certifi- 
cation mark usually furnish is a service. For instance, the service 
performed by concerns which offer seals of approval includes the estab- 
lishment of standards and the testing work necessary to determine 
whether products or services offered by other concerns meet these 
standards or the standards established by government agencies. The 
Act also recognizes a "collective mark" for use by co-operatives, other 
associations or collective groups. As in the case of a trade-mark, each 
of these other marks is likewise the legal counterpart of a brand which 
has been established and used for business purposes. 

Types of Brands 

There are four significant bases for distinction between types of 
brands. They are ownership, extent of the geographical area in which 
a brand is sold, the importance of the brand to the firm which uses it, 
and the number of products which it covers. Brands may be owned 
by manufacturers or by any wholesale or retail distributor. They may 
be national brands inasmuch as they are sold throughout the national 
market, or they may be regional, sectional, or city-wide brands. Manu- 
facturers often speak of their "primary" brands and of their "secondary 
or subsidiary" brands. The primary brands are those which are exten- 
sively advertised and/or in which a greater proportion of sales are 
made. However, many companies produce more than one quality of 
the same product either to utilize available materials or as a matter of 
merchandising policy. Brands are then used to achieve quality differen- 
tiation. When such a policy is followed, the term "primary brand" 
refers to the highest-quality brand and "secondary" or "subsidiary" 
brands to second, third, or fourth qualities. Finally, on the basis of the 
number of products covered, the distinction is made between individual 
brands and family brands. The former covers but one product, whereas 
the latter covers a group of products with like characteristics or which 
appeal to a particular sector of the market. 

Ibid, (italics added) 


It has become habitual in the field of marketing to distinguish be- 
tween national and private brands. The word "national" actually refers 
to manufacturers and "private" to distributors. The terms "national" 
and "private" are not particularly satisfactory as thus used, since they 
proceed from a mixed base. The term "national" applies to the area 
presumably covered in sales, whereas the term "private" applies to 
ownership. In fact, the so-called "private" brands are often sold 
throughout the national market, although they are owned by distrib- 
utors rather than by manufacturers. In contrast, national brands, as 
referring to those of manufacturers, are often sold only in certain sec- 
tions of the country. Although any terminology as firmly established 
for purposes of distinction as "national" and "private" for brands is 
likely to persist, greater exactitude in nomenclature would be achieved 
by stressing the ownership and geographical bases for distinguishing 
between types of brands. Reference would then be made to manufac- 
turers' brands in contradistinction to those of wholesalers, retailers, and 
chains, and to national brands as over against regional or sectional 

Objectives in Branding 

Control over the Market. — During the twentieth century the brand- 
ing of goods has come to occupy a key position in business activities as 
the first step toward market control. The manufacturer desires a large 
and steady demand for his products and, if at all possible, a continuously 
expanding volume of business to enhance his prestige, reduce unit costs 
of production, and increase earnings. Nothing is of much greater im- 
portance to him than the assurance of a steady demand, for manufac- 
turing facilities must be used continuously if reasonable costs per unit of 
output are to be attained. A steady demand also facilitates planning in 
reference to the purchase of materials, the employment of labor, and 
the administration of finance. What the manufacturer needed was 
some means of controlling the market. The plan evolved was to distin- 
guish his products from those of other manufacturers through branding, 
which made practicable various types of promotional activity directed at 
the consumer. Barring monopoly, advertising or other promotional ac- 
tivities are largely denied the manufacturer who has not achieved 
product identification, for their results may accrue to all producers of a 
product. If, through branding and promotion, consumers can be influ- 
enced initially to purchase a product and, through its use, to develop 
a preference or even a measure of insistence for it, repeat purchases 


may provide the assurance of steady demand which the manufacturer 
desires. The brand individualizes a manufacturer's product, indicates 
the source of supply to the consumer, and provides a connection be- 
tween the two parties, despite the fact that the product may continue to 
go through the wholesaler and the retailer. |In summary, brands furnish 
identification which makes practicable advertising and other demand- 
creation efforts. These, in turn, are the means for attaining some 
measure of market control through the influence which they exert on 
consumer buying habits. Through market control, manufacturers have 
often secured an assured demand for their products with all its attendant 
advantages. The whole procedure has usually resulted in an expanding 
volume of business for those who use it effectively. It is not an exag- 
geration to say that branding has been one of the most important 
prerequisites to the growth of large-scale industries, particularly in 
consumers' goods. 

Branding or other identification of merchandise is a necessary con- 
dition for the administration of any policy whereby the manufacturer 
takes responsibility for his products subsequent to their sale to the final 
consumer. The fact of a warranty implies that there must be contact 
between the manufacturer and the consumer if the product fails to give 
the expected utility for reasons covered in the warranty contract. A 
manufacturer's responsibility for servicing his products may likewise 
be subject to a contractual relationship, or it may simply be understood, 
but it is based upon product identification. Purchases of technical prod- 
ucts would not be made in as large volume without identification as to 
their source, for otherwise there would be no assurance of redress if a 
product failed to perform satisfactorily. Of course, reliance might be 
placed upon the immediate seller, for instance, the retailer of con- 
sumers' durables, but the potential purchaser might have considerable 
doubt of the retailers' willingness or of his ability to take the necessary 
responsibility for adjustment by servicing, replacement, or refunding 
of purchase price. Identification of merchandise by the manufacturer 
plus warranties and arrangements for service constitute the consumers' 
protection in purchasing, whether it be of machinery and equipment 
for industry or of consumers' goods. The offer of warranties and service 
for promotional purposes is, in fact, another device for securing and 
maintaining control over the market. 

Greater Independence in Price Determination. — The manufacturer 
through branding secures a quasi-independent status in pricing, even 
though his products are not particularly distinctive or unusual. He 


has, nevertheless, through branding, distinguished his product from 
that of other manufacturers. The differences between his product and 
competing products may be significant, or they may be more simulated 
than real; but the fact of branding establishes a difference in the minds 
of consumers, which may be considerably enhanced by promotional 
activities. If there are no distinguishing marks on merchandise of essen- 
tially like character, the market itself determines the price. There is 
little, if any, possibility of sales by one manufacturer at prices higher 
than those of his competitors. Differences in product, unless they are 
substantial and readily apparent, do not affect price until they are 
brought to the attention of buyers. However, a knowledge of differ- 
ences may result in a preference through which a price differential is 
established. At least, with product individualized through branding, the 
manufacturer sets an initial price — one which admittedly is experi- 
mental in nature and thus subject to revision upward or downward, 
depending upon a favorable or an unfavorable reaction from the mar- 
ket. The price will contain some element of monopolistic advantage, 
for branding has, in part, shifted the manufacturer from price to non- 
price competition. If branding and advertising have been effective in 
creating consumer preference, consumers may purchase a favored brand 
despite a material difference in price. The amount of the differential 
may, in whole or in part, be offset by the additional cost of promotion, 
but a higher profit can reasonably be expected. 

In general, the independence in price determination afforded by 
branding and sales promotion has resulted in price differentials based 
upon real differences in quality, service, or both to the consumer. How- 
ever, there is reasonably good evidence that prices charged in retail 
outlets for competing brands, particularly for canned goods, are not 
always in direct alignment with quality differentials. 6 This suggests that 
certain manufacturers or distributors have at times secured unwarranted 
profits through branding and advertising or, perhaps, in other instances, 
that their expenditures for promotion have been unwise. There is evi- 
dence likewise that prices for branded commodities are more rigid than 
for those which are unbranded or for those in which brand is relatively 
unimportant. This is indicated by price comparisons made over a period 
of years for men's shirts, breakfast cereals, and other products. 7 Where 

"Temporary National Economic Committee, Investigation of Concentration of Eco- 
nomic Power: Price Behavior and Business Policy ("Temporary National .Economic 
Committee Monographs," No. 1 [Washington: U.S. Government Printing Office, 1940]), 
Table 4, "Prices and Quality Grades for Specified Brands of Canned Goods," pp. 75-90. 



brand names were most significant, prices changed more slowly after a 
reduction in manufacturing costs, and the amplitude of fluctuations was 
less than where brand names were least significant. It would not be 
claimed that fewer price changes or changes of lesser amplitude were in 
the public interest or even, under all circumstances, in the interest of 
particular concerns. The point to be stressed here is that branding and 
advertising furnish the means whereby the manufacturer can, in part at 
least, control price in his own self-interest. 

The manufacturers' power over pricing of branded merchandise was 
considerably enhanced by the enactment of the Miller-Tydings Act in 
1937. This Act, in effect, legalized resale price maintenance on a 
national basis. Prior to 1931, price-maintenance contracts were illegal 
throughout the United States. The seller could not enforce a contract 
whereby the distributor of his merchandise agreed to sell only at prices 
specified by the seller. In 1931, however, California enacted the first 
fair-trade law which made such contracts legally enforceable as between 
two parties who were both citizens of the state. Forty-five states have 
now enacted similar legislation. Resale price maintenance under the 
fair-trade laws was, nevertheless, severely restricted until the enactment 
of the Miller-Tydings Act, for all but the smallest manufacturers sell 
across state borders, and they could not control prices in states other 
than the one in which they were located. This Act makes resale price 
contracts legal in interstate commerce if each party thereto is a citizen 
of a state which has a fair-trade law. 

The control over the pricing of branded merchandise which these 
laws provide is of considerable importance. Independence and control 
in price determination, previously given the manufacturer by the fact 
of differentiating his product from that of other manufacturers by 
branding, can be extended through to the final price to consumers, no 
matter how many market intermediaries intervene. He can establish a 
complete price structure for his products, enforce adherence to it by all 
distributors, and advertise retail price if he so desires. He can thereby 
control price-cutting on his merchandise. Considerable discretion must 
be used in the exercise of this pricing power, however; and, as yet, 
relatively few firms, although many in the aggregate, have found it 
feasible rigidly to maintain prices. The great majority of branded 
products have worthy substitutes, and a price maintained at too high a 
level in order to protect dealer margins may divert sales either to na- 
tional brands, for which price is not maintained, or to distributors' 


From the foregoing it is apparent that branding has both promo- 
tional and protectional objectives. Control of the market is a pro- 
motional objective, but it likewise serves as a protection to capital 
commitment in productive facilities through the assurance of contin- 
uous demand which it provides. Branding is protectional likewise, in 
that it makes misstatements and confusion as to origin of merchandise 
less likely. Producers or vendors of lower-quality or less well-known 
merchandise are largely estopped from falsifying the source of the 
merchandise which they sell. The service work on branded goods is 
both promotional and protectional in purpose. It not only helps to sell a 
product initially but protects the seller against ineffectiveness of his 
product in use and the adverse word-of -mouth advertising which may 
eventuate. Independence in price determination is a protection against 
abrupt fluctuations in market prices of unbranded goods and to invest- 
ment through the monopoly element in prices of branded goods. Finally, 
branding furnishes some protection to manufacturers against adverse 
actions on the part of distributors of their products. Distributors cannot 
shift demand so easily from one manufacturer's products to another's. 
Private brands of distributors, in turn, often protect them against the 
attempts of the manufacturer to control the market and to dictate dis- 
tributor's margins through price control. 

Specific Branding Problems 

In the administration of brands a manufacturer is usually faced with 
one or more of a number of specific problems. Among the most impor- 
tant of these are the following: whether to brand a product initially or 
sell it unbranded; whether to brand materials or parts which are sold to 
other concerns for assembly or other manufacturing operations; whether 
to manufacture under the private brands of mail-order houses, chain 
stores, wholesalers, or other distributors; what criteria to use in the 
selection of brand names, trade-marks, and other marks; whether to 
include a number of products under a family brand or, in contrast, 
whether to use a different brand for each product in a line; whether 
to use a number of brands for an identical product; whether to use both 
a primary brand and secondary brands for the same product in different 
grades; whether and under what circumstances to discontinue or con- 
solidate brands; what procedure to follow when confronted with strong 
competition from distributors' brands. The manufacturer frequently 
encounters legal problems likewise. If he is establishing new brands, 
he must avoid similarity to those of his competitors in brand names. 


trade-marks, or service marks. He must avoid encroaching upon the 
rights of others as protected by the Lanham Act or by the common law. 
Owners of well-known trade-marks have a constant problem of protec- 
tion and are frequently in litigation as a result of questionable action 
on the part of other concerns, which either inadvertently or by intent 
create confusion in the minds of consumers as to the source of their 
merchandise through too great similarity in brands and packages. 

Many of these problems arise because of confusion which may be 
engendered in the minds of consumers as to the source of products or as 
to their composition or quality. Brands are of significance to consumers 
for two principal reasons. They provide a direct connection with manu- 
facturers, other producers, or distributors through identification of the 
initial source of the merchandise or, at least, of the concern which takes 
responsibility for it. Moreover, to the consumer, brands stand for uni- 
formity of merchandise above all else. The consumer knows the source 
of the product, and he expects to secure the same product in the same 
quality whenever and wherever he repurchases it under the same brand. 
If, for some reason, the identification is unclear and if uniformity is not 
achieved, the branding problems have not been well-handled, and 
additional problems are bound to arise. Faulty identification is usually 
a competitive problem, whereas uniformity under a brand is an internal 
business problem. If a concern decides to brand its products, it should, 
as a matter of business policy, identify them adequately and protect such 
identification against encroachers and also should create sufficient 
uniformity under its brands so that they mean something definite to 

The question of whether merchandise should be branded may seem 
wholly academic to many people. It may appear to them that practically 
all products are branded, but such is not the case. A large proportion of 
the supply of textiles, clothing, furniture, miscellaneous household sup- 
plies, and numerous other items is sold unbranded. The problem of 
whether to brand a product is, therefore, not an uncommon one. More- 
over, it may appear in three guises, namely, whether to brand a product 
manufactured in the form in which it will be sold to the final consumer, 
whether to brand a product which constitutes a raw material or an 
assembly part for another manufacturer, and whether to manufacture 
under the private brands of other concerns. Each will be considered 
in turn. 

Whether To Brand Finished Products. — All products do not lend 
themselves equally to branding and advertising. For some products 


branding is both more difficult and less advantageous than for others. 
To place the diamond brand on walnuts was a difficult task, although 
it was finally accomplished and at reasonable cost. The branding 
of fresh meats has never been particularly successful, as the outside of 
the carcass on which the brand stamp is placed is often cut away before 
the meat is sold to the housewife. Since she cannot determine the source 
of the merchandise, the attainment of one of the primary objectives of 
branding is thwarted. Packaging has added immeasurably to the possi- 
bilities of branding, for products otherwise relatively nondistinctive 
become distinctive through the package, and the practice of simulating 
difference and exaggerating minor differences in product to attract de- 
mand becomes more effective. Furthermore, the package often becomes 
the vehicle for the brand name and trade-mark, whereas the product 
itself might be difficult to brand. 

If a product does not lend itself to innovations by a manufacturer, 
thereby creating some measure of distinctiveness for it, there is less 
reason for branding. It is a safe generalization that the feasibility of 
branding and advertising varies directly with the degree of distinctive- 
ness which a product possesses. There is also less reason for branding 
a product if there is little likelihood of frequent repurchase, even though 
it may be distinctive. This applies to goods of the notion or gadget 
variety. They may have only a transitory appeal, and therefore the 
brand of the manufacturer means little as an indication of source or 
assurance of quality and uniformity. The nature of the product is such 
that the use of a brand to provoke repurchase is relatively unimportant. 

Another useful generalization is that brands are of relatively little 
importance when the attributes which give value to a product are easily 
observable by inspection. Contrast medicinals and cotton textiles in this 
regard. In the great majority of instances the purchaser has neither the 
opportunity nor the ability to judge the curative properties of medici- 
nals. Moreover, they may actually be harmful if they are not prepared 
for the market with intelligence and care. Thus the identification of 
their source through brands assumes great importance in the mind of 
the consumer. Cotton textiles, in contrast, have been largely dominated 
by design, color, and other shopping characteristics as the basis for 
motivation in purchasing. They are shopping goods, in contradistinction 
to those of a convenience or specialty character. While they often have 
important attributes which are not observable by inspection — for in- 
stance color fastness — those which are observable are more likely to 


dictate choice. Consequently, the brand of the manufacturer is less 
important to the consumer than it is in the case of medicinals. 

Manufacturers often sell surplus goods unbranded or under private 
brands. They may feel that a downward- price adjustment is in order 
but hesitate to make an adjustment on branded items. A manufacturer 
may believe that there is a market for a lower-quality product than the 
one which he produces under his brands. In order to avoid the possi- 
bility that the sale of a lower-grade product under a new brand will 
induce confusion as to quality in the consumers' mind or provoke sub- 
stitution of the new brand for the old one, a manufacturer may, at least 
initially, sell the lower-grade product unbranded. In other instances a 
lack of appreciation of the value of brands x>r the financial ability to 
exploit them fully may lead to the production of unbranded mer- 

From the foregoing it is apparent that the question of branding is 
a relative matter, depending on the nature of the merchandise and the 
position of the manufacturer. If identification is too difficult a problem, 
if the advantages which may accrue to a manufacturer are not great, and 
if his financial resources are limited, he may decide against branding, 
or perhaps, for branding, but without the usual follow-through of ex- 
tensive promotional work. 

Whether To Brand Materials or Parts for Assembly. — This ques- 
tion is always a pertinent one when there is a dual market for a manu- 
facturer's products — both to other industries and to consumers. This is 
the situation for many products, among them textiles and motor-vehicle 
parts and accessories. Textiles are sold both as piece goods to consumers 
through retail outlets and as a fabricating material to cutters-up in the 
garment trades. Both the replacement market and the new-car market 
are important for producers of automotive parts and accessories. In 
each instance, manufacturers can utilize brands and go directly to con- 
sumers with promotional effort. It is an aggressive procedure, with one 
or both of two principal objectives in mind, namely, to influence the 
consumer to purchase directly for home fabrication, as in textiles, or for 
replacement, as in motor-vehicle parts, or to induce him to prefer the 
product in initial assemblies. Moreover, the concern which fabricates 
or assembles the materials or parts may be induced to believe that the 
inclusion of branded items in his products will increase the demand 
for them. 

Only a small part of the total volume of fabricating materials and 
assembly parts are identified through to the final consumer. There is a 
tendency, however, one which is particularly noticeable in the textile 


industry, for manufacturers to extend the identity of their products 
through to the final consumer, even though their products are sold in 
large proportion to other manufacturers for further processing. It has 
been a common practice for manufacturers of tires, batteries, spark 
plugs, accessories, and the like to brand their products. These items are 
very important to the effective performance of the assembly. They 
are both noticeable and easily detachable from the assembled unit. They 
are distinctive products, which have hidden values not observable by 
inspection. In addition, the replacement market for them is substantial, 
inasmuch as their normal life-span is considerably less than for the 
body of the car and other assembled units. 

Textiles, in contrast, as a fabricating material, do not possess a re- 
placement market in the same sense. Nevertheless, the replacement of 
the garments of which they are the principal material is more frequent. 
In the past the distinctive qualities of textiles were largely those of 
color and design — qualities which were fully observable by inspection 
— and therefore brand meant relatively little to the consumer. Now 
the situation has changed, as the degree of distinctiveness of one manu- 
facturer's product over another's is greater than formerly. Hidden 
characteristics have assumed additional importance. Few fabrics are 
made today which have not been improved by recent discoveries in 
textile chemistry. We hear much of such characteristics as freedom 
from shrinkage, water repellency, permanent crispness, crease resistance, 
and fire retardance. 8 Even processes which create these characteristics 
are branded, such, for instance, as the process of Sanforizing to control 
shrinkage. While many brands in the textile industry, such as "Fruit of 
the Loom" are old, those of yarn producers, such as Dupont, Cellanese, 
and Bemberg, and of weavers, such as Pepperell, Forstmann, and 
Botany, are comparatively new. Apparently, the branding of textiles is 
proceeding rapidly, and the reason, therefore, is that some manufac- 
turers' products have become more distinctive than formerly, and con- 
sumers have been made aware of that fact through advertising. At 
present it is not at all unusual for garment manufacturers or for gar- 
ment retailers to advertise that items which they sell are made of certain 
branded fabrics or have been treated with certain processes in order to 
improve their quality. 

At times, manufacturers brand new and unusual materials and ad- 
vertise them extensively. The advertising is directed both at consumers 
and at other manufacturers who may be in a position to use the product. 

8 See James C. Cumming, 'The $8,000,000,000 Textile Industry: Is It Ripe for Brand 
Name Promotion?" Sales Management, Vol. LIV, No. 8 (April 15, 1945), p. 52. 


These manufacturers may be influenced directly by the knowledge of a 
product's attributes secured through advertisements or indirectly by the 
knowledge that consumers are aware of the new product and its adapta- 
bility to consumers' goods. In other words, through branding and 
advertising, a manufacturer may elicit the support of consumers in 
inducing other manufacturers to use a material. The branding and 
advertising of Dowmetal, a magnesium alloy, is a case in point. It has 
both strength and lightness to a remarkable degree. The Dow Chemical 
Company in advertisements has suggested a variety of possible uses for 
the material — among them, for the manufacture of lawn mowers, 
portable sewing machines, and children's tricycles. 

In summary, in order to make branding and advertising of fabri- 
cating materials and assembly parts feasible, they must possess distinc- 
tiveness, and the variations between one manufacturer's product and 
those of his competitors must be significant to consumers. Furthermore, 
the assembly part or material, unless it is of unusual significance in 
relation to the performance of the complete unit, must be a major item 
in the final assembly. If it is likewise a noticeable item, one which is 
detachable and one which will need replacement before other parts are 
worn out, the feasibility of branding and promotional effort is enhanced. 

Whether To Manufacture under Distributors' Brands. — It is doubt- 
ful whether manufacturers ever prefer to produce under distributors' 
brands rather than under their own brands. There is not likely to be so 
great an opportunity for profits or the same degree of assurance of 
continuity of production at a high level. In periods of excess demand, 
such as the present ( 1947 ) , concerns which manufacture under distrib- 
utors' brands often attempt to stabilize their production by establishing 
brands of their own. 9 They seek release from an unsatisfactory situation 
in which other concerns can summarily withdraw large sectors of de- 
mand from them. While there is undoubtedly some mutual interde- 
pendence between manufacturers of distributors' brands and their 
customers, nevertheless, in periods of excess supply the bargaining 
advantage is with the distributor. There are likely to be numerous 
sources of supply which he can play one against another in order to 
secure the lowest prices and the most favorable terms. If the demand 
controlled by the distributor is substantial, as in the case of large chain- 
store companies and mail-order houses, all, or the major part, of a 
manufacturer's production may be contracted for well in advance. He 

9 See "Private Brands Go National," Business Week, January 18, 1947, p. 59. 


has then affiliated himself so closely with the brand owner that with- 
drawal of the contract may well prove disastrous. 

In view of the foregoing analysis it may be difficult to discern just 
why manufacturers take orders for production under distributors' 
brands. The reason, in the majority of cases, is that they have no imme- 
diately feasible alternative. There are a large number of small manufac- 
turing concerns in the United States which have productive facilities but 
neither the capital nor, perhaps, the technical and managerial ability to 
design products, establish brands and trade-marks, and create a broad 
market for them through the usual demand-creation efforts. Such con- 
cerns may be very willing to enter into contracts with large distributors 
who offer an immediate and substantial volume of business, although 
assurance of future business is lacking. They are often relieved of the 
designing function, as they may be asked to produce to the distributors' 
product specifications. Financial stringency is no handicap — in fact, 
they may think of a deal of this character as a means of improving their 
financial position, thereby allowing them at some future time to estab- 
lish brands of their own. 

Large manufacturers of well-known brands may be in much the 
same position as the smaller concerns. They may also have production 
capacity available. Competition may have been particularly strong, or 
there may have been miscalculation as to the need of capacity initially. 
The additional output furnished by producing under distributors' brands 
would permit them to spread fixed costs over a greater total volume of 
business and thus possibly increase profits. If a manufacturer is keenly 
aware of the decreasing-cost nature of industry and has not reached 
the optimum size of the production unit through sales of his own 
brands, he may even increase capacity for manufacture under distrib- 
utors' brands. He may reason that mail-order houses, chain-store com- 
panies, and even large wholesalers do control, or are in position to 
control, a substantial sector of the market for the products in which he 
is interested and, moreover, that his refusal to produce for them will not 
prevent them from securing the desired supply under their own brands. 
If this reasoning is valid, the fact of producing under distributors' brands 
will not decrease demand for his own brands disproportionately unless 
the two are closely connected in the consumers' mind through com- 
ments of the distributors' sales people or unless the product under the 
two brands is markedly similar. The product under the two brands 
may, in fact, be different, and comments to the effect that goods under 
the distributors' brand were made by the manufacturer of a well-known 


competing brand may be unlikely. Under such circumstances, sales 
under a manufacturer's brand will not be affected by the fact of produc- 
tion under distributors' brands to a substantially greater extent than the 
sales of other competing manufacturers. A manufacturer may then see 
little reason for turning down orders to be filled under the brands of 
distributors. In contrast, he may see the possibility of increased net 

In our previous discussion of branded versus unbranded merchan- 
dise it was argued that a manufacturer may have valid reasons for 
producing some unbranded merchandise, even though he depends 
largely on sales of branded items. He may sell surplus, off-quality, or 
lower grades of product unbranded. In a period of generally declining 
prices he may decide to hold the price on his branded items, even 
though sales volume is somewhat reduced. This decision is more likely 
if resale prices are maintained under the fair-trade laws or under the 
Miller-Tydings Act. Under such circumstances he may produce and sell 
unbranded merchandise to sustain sales volume. Product may be pro- 
duced under distributors' brands with much the same objectives in mind. 
Suppose that the total output of a product remains fairly stable despite 
changes in business conditions but that the proportion of the total sold 
in various qualities or price lines varies substantially as a result of such 
changes. This may be the case for hosiery, shoes, canned goods, and 
other products. Under these circumstances much can be said for manu- 
facture both under company brands and distributors' brands. Perhaps 
the risk inherent in each is partially neutralized, and the major objec- 
tive, that is, a continuance of high-volume production, is more likely to 
be attained. 

The establishment of new brands by distributors and the appear- 
ance of previously unknown manufacturers' brands on the market are 
recognized phenomena of a downward movement of the business cycle. 
Apparently, manufacturers are loath to lower prices on their well- 
known brands during the early months of a business recession or to 
lower them sufficiently to hold the market. As noted previously, there 
is a measure of rigidity in the prices of widely recognized and heavily 
purchased brands of merchandise. However, if a reduction in demand 
occasioned by a failure to reduce prices on his own brands is compen- 
sated for by an increase in sales under distributors' brands, the effect on 
profits will not be particularly serious. If a manufacturer is producing 
a lower quality under distributors' brands than under his own brands, 
a decrease in the level of purchasing power will probably induce substi- 


tution of one for the other or, in general, of lower for higher grades 
of the product. If he is selling only high-quality merchandise, he may 
have to consider lowering the quality under his brand to retain volume 
of output. Such action is always doubtful as a matter of business policy, 
as 'it is in conflict with the principle that uniformity under a brand 
should be maintained. The necessity for this action may be obviated if 
he can get volume from other sources, such as unbranded lines or dis- 
tributors' brands. While it may be considered administratively difficult 
to maintain total volume by shifting business between a company's own 
brands and distributors' brands, it is, in part at least, the result of market 
action. One or the other may be more attractive to buyers at any partic- 
ular time, depending on comparative prices, qualities, and the level of 
purchasing power. 

Selection of Brand Names, Trade-Marks, and Other Marks 

Brand Names. — A reasonable point of departure in considering the 
selection of brand names is the manner in which they will subsequently 
be used. While this assertion seems obvious, still there is ample evi- 
dence that the question of subsequent use is often disregarded when 
brands are named. Consider, for instance, the brand names of many 
proprietary medicinals which refer back to their drug components or 
medical terminology for the physical disabilities which they are sup- 
posed to alleviate or cure. Examples are numerous and can be seen on 
the shelves of any drug store. The layman usually does not know how 
to spell these names or how to pronounce them. He has little, if any, 
idea as to what these brand names may signify by way of component 
materials or probable curative effect on the patient. It may be argued 
that such names mean something definite to the medical practitioner 
and the pharmacist and that the products are usually prescribed by one 
party or the other. If the consumer does not have to use names of this 
character, they may not be a handicap to sales. Still, many products 
with such names are advertised directly to consumers. Therefore, it is 
contemplated that the names will be used by the consumer in pur- 

In the selection of brand names it is well to keep constantly in mind 
that names will probably be used by the consumer when asking for 
products in retail outlets, in writing for products, and in listing products 
desired. Brand names are constantly used in conversations between 
buyers and sellers and between potential buyers. On the part of the 
manufacturer, names are used in promotional effort on advertising copy, 


on package inserts, and in numerous other ways. An effective brand 
name eases the task of the consumer in procurement of a product and 
the burden of the manufacturer in promotion. Furthermore, an effective 
brand name can serve as a positive force in the selling effort. Any 
brand name, through extensive promotion, can be made familiar to the 
trade and to potential consumers, but the task of so doing is more diffi- 
cult and more costly if the name chosen for a brand is not an effective 
one. Furthermore, for many products the margin of preference for one 
brand over others is slight, and differences in the ease of using brand 
names or the ease with which they are recognized may shift purchases 
from one brand to another. 

The question now arises as to what characteristics are desirable in 
a brand name. Effective names are easily recognized, but it is difficult 
at times to state precisely why they are effective.[As criteria for selection 
it is usually stated that brand names should be short and simple and 
easy to recognize, pronounce, spell, and remember. They should be 
euphonious if they are to be recalled without difficulty and pronounced 
easily. A brand name which may be pronounced in many different ways 
should be avoided, as confusion results and the manufacturer must then 
instruct dealers and consumers as to the proper pronunciation. A brand 
name which is pronounced phonetically is preferable because the likeli- 
hood of mispronunciation is reduced. Contrast the brand names Ipana 
and Pebeco for toothpaste and the brand names Camel and Pall Mall 
for cigarettes. There is little doubt as to the proper pronunciation of 
Ipana and Camel but considerable doubt in the other instances. At 
least the manufacturers of the other two brands have found it necessary 
to instruct consumers as to the correct pronunciation. 

Another characteristic which is desirable is that the name should 
suggest or describe the product, its manufacture, or its use. On this score 
Frigidaire and Coldspot seem preferable to Servel and Kelvinator. A 
brand name which suggests or describes a product is likely to be both 
appropriate and meaningful to the potential buyer. It is helpful if the 
brand name can be easily connected with the trade-mark. This is the 
situation when the manufacturer's name or an abbreviation, such as 
GE, Armco, and Esso, constitutes both the brand name and, when writ- 
ten in a distinctive manner, also the trade-mark. The brand names and 
trade-marks of motor vehicles furnish an example. The more distinc- 
tive a brand name can be, the less likelihood there is of markedly similar 
names for like products of other manufacturers and therefore confusion 
as to the source of supply. In the selection of a brand name, care must 


be taken to see that the rights of other concerns are not infringed upon 
through too great similarity. Legal considerations in the selection of 
brand names will be considered more fully shortly. 

It is evident that the characteristics mentioned are somewhat in 
conflict. A longer, less easily pronounced brand name may be much 
more descriptive of a product than a shorter one or may have a partic- 
ular appeal to consumers. Exotic names, although not easily pro- 
nounced, may have a strong appeal, especially if some foreign country 
is noted as a source of supply. French perfumes are a case in point. The 
name of Sheetrock for wallboard is somewhat long; nevertheless, it 
indicates the form of the product and likewise suggests that it possesses 
the strength necessary for construction purposes. The brand name 
Caterpillar for tractors is an excellent one, as it clearly indicates the 
type of motor vehicle to which it is applied. The name Motorola is an 
effective combination for indicating both the product itself and the 
companion product on which it is used. The name Keen-Kutter for 
fine-edged tools is descriptive and also indicative of quality. Certain 
names are helpful for indicating classes of merchandise or manner of 
use, for instance, Mobiloil and Mobilgas, likewise Bisquick and Pye- 
quick as companion products of General Mills, Inc. 

Another brand name with excellent characteristics is Fiberglas. This 
name is highly descriptive of the product because the product is, in fact, 
glass fibers. Rinso and Duz for soap powders, Zerone for a nonfreezing 
liquid for use in motor vehicles, Sunkist for oranges, and Band-Aid for 
medicated bandage strips are all effective brand names. One of the best 
is Bug-a-Boo for a liquid disinfectant. The Sherwin-Williams Company 
has recently introduced three products under the brand names of Weed- 
No-More for a weed-killer, Bug Blaster for a home garden insecticide, 
and Pestroy for a DDT insect powder. Each of these names, although 
somewhat long, indicates the contemplated use of the product. There 
are many other instances, however, in which the brand names chosen 
apparently have little if any connection with the attributes of the prod- 
ucts themselves or the manner in which they are used. Under such 
conditions a brand name may be a stumbling block to sales rather than 
a constructive force in the sales effort. Still, a manufacturer who 
selected an ineffective brand name initially hesitates to make a change. 
He feels that much time, capital commitment, and promotional effort 
would be lost by a change. Failure of consumers to recognize a product 
under a new name might create an advantage for competitors and, for 
awhile at least, seriously reduce sales volume. While the difficulties 


encountered in maintaining sales volume during the time that con- 
sumers are becoming familiar with a new brand name are recognized, 
nevertheless, they are probably overstressed by business concerns. Sub- 
stantial changes in packages and labels have been made at times without 
a loss of sales, and even a change from an undesirable to a desirable 
brand name, if effectively merchandised, might not be particularly dis- 
advantageous in the short run and highly advantageous over a longer 

A word of caution is necessary in relation to the selection of highly 
descriptive brand names for products. Later a company may wish to 
capitalize on the good will and consumer acceptance for the product 
first introduced, but the name of the product may be singularly inappro- 
priate when applied to other products which are, nevertheless, closely 
related both in production and in marketing. There are a number of 
good examples in the household-appliance field. Servel refrigerators, 
operated by heat, utilize either gas, oil, or electricity. Beginning in 
1926 these refrigerators were sold under the trade-mark Electrolux, 
after purchase of patent rights owned indirectly through another com- 
pany by A. B. Elektrolux, a Swedish concern. The trade-mark Electrolux 
was singularly inappropriate for a gas or kerosene refrigerator. There- 
fore, in the middle thirties, Servel, Incorporated, started to sell its refrig- 
erators under the name Servel Electrolux and later changed the name 
of its gas and kerosene models to Servel. Combination of the two names 
for an interim period aided in the necessary transition from one name 
to another. The models which use electric power are still being sold 
under the trade-mark of Electrolux. 10 

In addition to refrigerators, Frigidaire Division of General Motors 
Corporation now produces kitchen ranges, water heaters, and washing 
machines under the name of Frigidaire, although the name is inappro- 
priate for any product which does not reduce normal temperature for 

10 It is interesting to note that the Electrolux Corporation, a manufacturer of vacuum 
cleaners under the trade-mark Electrolux, obtained patent rights on its vacuum cleaner 
from the same Swedish concern. Elextrolux Corporation apparently registered the trade- 
mark first but later consented to registration of the same mark for refrigerators by Servel, 
Inc. This appears to have been shortsighted policy on the part of Electrolux Corporation 
if expansion into other items in the appliance field was contemplated. The use of the 
mark Electrolux by two companies in the appliance field has resulted in considerable con- 
fusion as to the source of merchandise. Fortunately, both companies produce a quality 
product, so neither company nor consumers have been seriously harmed by the inevitable 
association of the two products in the consumers' mind. In fact, each product has probably 
aided the sale of the other. Nevertheless, it is not a particularly healthy situation either for 
the company or for the consumer when considerable confusion exists as to the origin of 
products through the use of the same trade-mark by two companies for products in the 
same general class. 


preservation of food or other purposes. The General Electric Com- 
pany produces two general lines of household appliances, the General 
Electric line and the Hotpoint line. The first name is not restrictive, 
in that any product could be named General Electric or GE. The 
Hotpoint brand name, although very descriptive of the utility fur- 
nished by some products, might not be so appropriate for others. This 
conflict suggests that a less descriptive name or, perhaps, a company 
name may be preferable if a company contemplates the manufacture 
of a complete line in a given field, such as major household appli- 
ances. Emphasis on a particular brand name in promotional activities 
may create a large measure of consumer good will for a name which 
cannot then be carried over to other products acceptably, even though 
some products are in close alignment both in production and in 

In the selection of a brand name for a new patented product the 
owner of the patent must recognize the possibility that the name 
selected may become a generic name for the product and thus capable 
of appropriation by others when the patent expires. There are many 
notable instances in which this happened, among them for aspirin, 
shredded wheat, and linoleum. For instance, if the name Fiberglas 
becomes what the Lanham Act calls "the common descriptive name" 
by which glass fiber is known, upon expiration of the patent, concerns 
other than the patentee not only can manufacture the product but 
also can call it "fiberglas" if they do not deceive the purchaser as to 
source of origin. In view of this situation, it might be advisable for the 
patentee to select two names, one for the product as a product class 
and another as a trade-name. Each of the two should then be kept as dis- 
tinctive as possible. In negotiation over patents or trade-marks, as 
well as in promotional effort, it should be stressed that the product 
name is one thing, the trade-name another — for instance, that fiber 
glass is the product and that Fiberglas is a registered brand name of a 
particular concern. The strenuous efforts of the National Biscuit 
Company and the Bayer Company to retain full rights in the names 
"shredded wheat" and "aspirin" attest to the values which may be lost 
by a name's becoming generic and thus usable legally by other con- 
cerns. In these two instances action was taken too late, for, according 
to the courts, the names had become generic. Other concerns — for 
instance, the Eastman Kodak Company for the brand name Kodak — 
have engaged in extensive advertising to prevent their brand names 
from becoming generic. Constant association of the brand name with 


the product name during the life of a patent may likewise serve as a 
protection when the patent has expired. Purchasers associate the two 
names, and it is therefore more difficult for other concerns to enter the 
market successfully, even though they can use the generic name. 

Trade-Marks and Other Marks. — Much of what has been said 
previously about the selection of brand names applies equally well 
to trade-marks and other marks. The brand name, whether company 
name or otherwise, may be used as a trade-mark if it is distinctive, as 
in the case of Niblets, or is made distinctive by the manner in which 
it is written, as in the case of Holeproof for hosiery. Under such 
conditions brand names are registrable under the Lanham Act. How- 
ever, most companies have a trade-mark in addition to brand names. 
Trade-marks are in the form of symbols which may contain letters, 
words, or pictures in some appropriate design. Thus a concern may 
have three means of identification for its products — the company 
name, brand names, and a trade-mark. 

Whether it is necessary to have a trade-mark other than a brand 
name depends upon numerous factors, among which the most im- 
portant are the nature of the line which a company produces and 
whether its brand name or names are registrable and protectible. If 
a company produces only one product or a very few closely associated 
products under one brand name and that name is protectible, as in 
the case of Holeproof or Buick, there is little need for another trade- 
mark. In contrast, a company may have a number of brand names, 
and the trade-mark then furnishes a connection between them. It con- 
stitutes a blanket mark by which the members of a family can be 
recognized. As an example, the Minnesota Valley Canning Company 
has four brand names — Green Giant, Niblets, Mexicorn, and Del 
Maiz — under which the company packs peas, corn, and asparagus. In 
advertising and on labels these brands are all identified by the com- 
pany's familiar Green Giant trade-mark. Similarly, the Flying Red 
Horse trade-mark of Socony- Vacuum Oil Company, Incorporated, 
means something more than any particular brand name of the Com- 
pany. It not only associates the brand names but likewise signifies 
a certain standard of products and service. When a company produces 
many dissimilar products under many brand names, some connection 
through a common trade-mark is even more necessary. For instance, 
the GE trade-mark on a Hotpoint appliance is a significant factor in 
inducing purchase. 


A trade-mark other than a brand name may be needed if, for some 
reason, the brand name may not be fully capable of protection. If a 
brand name is not particularly distinctive, if it is descriptive, either 
geographically or otherwise, there is always considerable doubt as to 
whether other concerns can be withheld from using the name. While 
the point might be debated vigorously, nevertheless, there is some 
basis for the assertion that trade-marks in the form of symbols can 
be made more distinctive than names, that priority in use which gov- 
erns property rights in a mark is more definitely determinable, and, 
therefore, that the right of exclusive appropriation is more certain. 

In the selection of trade-marks, both protectional and promotional 
objectives must be considered. A trade-mark might be selected which 
is fully capable of protection but entirely ineffective in helping to 
sell a company's products. Still the two objectives often complement 
each other, for a highly distinctive mark is less likely to infringe upon 
the rights of other concerns and is more likely to be a positive force 
in promotion. It is less likely to be imitative of other marks, either 
by intent or by chance, and imitation by other concerns is more diffi- 
cult and more apparent and capable of proof if litigation based upon 
assertions of too great similarity is necessarily engaged in at some 
later date. A highly distinctive mark, such as the picture of the 
Dutch Maiden for Old Dutch Cleanser, the baby picture for Gerber's 
baby foods, or the picture of the girl under the umbrella for Morton's 
salt, meet both types of objective excellently. Specifically, from the 
point of view of protection, a mark should not be selected which has 
too great similarity with marks which belong to other concerns, for 
confusion as to the origin of products and subsequent litigation is 
likely to be forthcoming. A mark should not be selected and used 
unless a concern is reasonably sure of its legal status. Moreover, a 
mark should be distinctive and not easily imitated, for otherwise there 
is greater likelihood of attempted imitation, followed by litigation 
to determine the rights of the parties at issue. 

Promotional criteria for the selection of trade-marks are much the 
same as for brand names although ease of recognition is of greater 
importance than ease of recall. Names are spoken and written, whereas 
marks are used chiefly for purposes of recognition. Therefore, the 
value of a trade-mark for promotional purposes depends largely upon 
the ease with which it is recognized, the length of time over which it is 
remembered, the extent to which it attracts the attention of potential 


buyers, and the degree to which it suggests the company which produces 
the merchandise to which the mark is affixed. 11 Trade-marks should be 
attractive in appearance, reasonably simple in design, and appropriate 
to a company's products. They should be easily placed on the product 
or the package and inexpensive to apply. It is helpful if they can be 
named and described, for then they have greater promotional value. 
The sign of the Flying Red Horse, the Green Giant, and the Rock 
of Gibralter of the Prudential Life Insurance Company are cases in 
point. Some trade-marks are closely associated with slogans. In fact, 
there may be doubt in certain instances as to which was developed 
first. Some trade-marks may have been designed to illustrate slogans. 
"When It Rains It Pours" for Morton's salt; "It's Time To Retire" 
for Fisk tires; "Hasn't Scratched Yet" for Bon Ami; "His Master's 
Voice" for RCA Victor, have been very effective in promotion and 
have added greatly to the recognition value of the trade-marks. Through 
constant association of the slogan and the trade-mark, the latter illus- 
trating the former, the trade-mark becomes meaningful, and both give 
a sales message in a condensed and effective manner. 

The foregoing discussion suggests an important criterion in the 
selection of trade-marks, trade-names, and slogans, as well as in the 
proper use of a company name in promotional activities. It is con- 
cerned with the degree of association between these means of identi- 
fication. They should work together as a team in promotional effort. 
In the trade-mark and slogan examples just mentioned, the associa- 
tion is very close indeed and very effective in sales promotion. Al- 
though trade-marks should refer to the company name in some man- 
ner or to brand names, there are many instances in which the asso- 
ciation is tenuous and not even recognizable unless they appear in 
close proximity. A single letter or some intricate design in an oval, 
square, or rectangle is often used as a trade-mark. When seen alone, 
it has no significance to most potential customers. Such abstract sym- 
bols do not arouse attention, nor are they remembered easily. There 

11 In the selection of trade-marks, psychologists have something to contribute. Memory 
value and thus the probability of recognition of different forms and types of trade-mark 
are subject to experimentation and thus to quantitative determination. Psychologists say 
that pictures rank highest in memory value, followed by symbolic forms, words, and letters, 
in that order. Tests have been made at times of the extent to which customers recognize 
different trade-marks which are in use. While such tests are of value, it should be pointed 
out that recognition is an outgrowth both of the memory value of the mark and the extent 
to which respondents have been exposed to the mark through promotional effort. In the 
initial selection of a mark, however, recognition tests may be very helpful in reaching a 


should be some reference to the company name or to brand names 
in marks, for, otherwise, promotional value is lost. Furthermore, 
unless there is a reasonable measure of association between the vari- 
ous means of identification, the value of repetition as a means of 
securing recognition and customer preference is likewise partially 
lost. Only through association of trade-names, trade-marks, and the 
company name are all sources of influence upon the customer fully 
utilized in the promotional effort. 

Coverage of Brands 

We are primarily concerned here with inclusion of products under 
specific brands and trade-marks. Many products may be sold under 
one brand, or, in contrast, one product in one quality may be sold 
under many different brands. Moreover, different qualities of a product 
may be sold under different brands in order to achieve quality differ- 
entiation. The question of the market coverage of brands is likewise 
pertinent in this connection. Brands may be established for particular 
geographic sectors of the market or for human sectors, such as na- 
tionality or age groups. The questions involved in the consolidation 
of brands will also be discussed. Action of this character constitutes 
an attempt to reduce the number of brands which cover either a given 
number of products or sectors of the market. 

One Brand for Many Products. — The so-called "family" brands or 
"blanket" trade-marks cover a group of products more or less closely 
connected in type or quality. They are used for many products, among 
them foods, toilet articles, and drug sundries. The primary objective 
of a manufacturer in associating a number of products through a 
single brand is to connect them in the minds of consumers so that one 
product will help to sell another. If a particular product has secured 
a large measure of consumer acceptance either through its unusual 
characteristics or through its effective packaging, the consumer may 
reason that all other products under the same brand are equally accept- 
able. This relationship is particularly important as between old and 
new products. The first promotional problem with a new product, 
and often the most difficult one encountered, is to get potential users 
to try it under normal use conditions. If it is an excellent product, 
perhaps in some respects superior to the competing product customarily 
purchased, an initial trial may result in habitual use. In a very real 
sense the family brand furnishes a foothold in the market for any 
product which bears it, even though the product is new and untried. 


Another advantage in family brands is that promotional costs are 
incurred for one brand rather than for many. For instance, Heinz 57 
varieties of canned foods may be advertised as a group rather than as 
individual items. Swift's Premium brand covers many products which 
are advertised jointly, although any particular advertisement may 
feature one product. In contrast, Ivory Soap, Spam, Crisco, and many 
other products are branded and advertised individually. This contrast 
suggests a conflict of objectives. A carry-over of good will from one 
product to another and lower promotional costs are achieved by the 
use of family brands, but no one product gets as much attention as 
it would if branded and advertised individually. Each product is some- 
what submerged in the group, whereas a particular product may be 
unusually distinctive and possess attributes which could not be stressed 
in promotional work for the group as a whole. Therefore, the family 
brand acts as a leveler, for it implies that all products included under 
the brand are of equal quality and distinctiveness. Those products 
which stand out from the group need individual branding and promo- 
tion. If there is a large potential market for them, the costs of such 
promotion are not likely to be prohibitive. 

As stated previously, the presence of a brand on a product should 
mean something definite to the consumer. The use of a family brand 
should suggest that the products included thereunder have some essen- 
tial likeness, perhaps that they are all of a certain quality or that the 
consumer can have full confidence in any product which carries the 
brand. However, a brand cannot be so significant for indicating particu- 
lar qualities in merchandise or uniformity of quality if it covers many 
products. If the meaning of a brand is too greatly diffused or if it 
covers unlike or even contradictory elements, then it ceases to have 
meaning. Thus it becomes a matter of careful selection of the items 
to be included under a family brand. If products are closely associated 
in use; if they appeal to much the same buying motives; if they are 
distinctive as a group but not particularly so as individual items; if 
they are of the same average quality, so that the reputation of one 
product is not injured by the reputation of another; and if there is 
little difficulty in maintaining standardization for each item, then 
family brands are feasible and offer important advantages to the manu- 
facturer. Conversely, if these conditions are not met, the establish- 
ment of individual brands for particular products becomes more 
attractive. Not all reasonable objectives can be accomplished by either 
procedure. Rather it is a question of selecting from alternatives, with 


choice being dictated by the closeness with which a company's products 
are associated in type, quality, and use. 

The choice of alternatives is not so clear-cut as the foregoing 
analysis may suggest because a company's name always serves in some- 
what the same capacity as a family brand. 12 It has become increasingly 
apparent that such is the case for prominent companies, even though 
their advertising has emphasized individual product brands. Studies 
made by Armour and Company and The Kroger Co. indicate that 
consumers are more familiar with the names of Armour and Kroger 
than with the family brand names of Star and Country Club or than 
with brand names for individual products. In a Kroger study only 
one-quarter of the company's bread customers identified the bread 
. which they purchased as "Clock" or "Thiron," although these brand 
names had been advertised extensively for more than a year in radio 
and newspaper advertising. The other three-quarters of their cus- 
tomers identified the product which they purchased as "Kroger 's." 
As a result of these studies both Armour and Kroger are now em- 
phasizing the company name and either subordinating or discontinu- 
ing certain brand names. In this connection it is interesting to note 
that Swift & Company infrequently uses the brand name "Premium' 1 
alone, but, in contrast, the words "Swift's Premium." These are the 
words which are stamped on fresh meats. This practice is an easily 
defensible one, for the company origin of a brand is never in doubt. 
However, if a company wishes to stress individual products rather than 
family groups through branding, the company's name could easily be 
subordinated in advertising, packaging, and labeling so that it would 
not serve actively as a family brand. 

Multiple Brands for One Identical Product, — Manufacturers have 
frequently followed the policy of placing a product on the market 
under a number of different brands. The product itself may not vary 
either in type or in quality. At least the manufacturer may strive for 
complete standardization other than in the brand and, perhaps, in the 
package. Instances have been known in which consumers became 
attached to a certain brand and were firmly convinced that the brand 
covered an unusual and distinctive product, whereas, in fact, other 
brands sold in the same market were of identical origin and quality. 
For instance, it is said that flour millers put out the same quality under 
numerous brands and that paint manufacturers have done likewise. 

12 See "Private-Brand Departure," Business Week, November 9, 1946, p. 48; "Armour 
Tells How It Did Biggest Relabeling Job," Advertising Age, June 24, 1946, p. 54. 


Evidently, the manufacturer believes that he can secure a greater 
volume of sales under many brands than under one. At least, he can 
offer the distributors of his merchandise something to sell which 
appears to be distinctive. 

Independent dealers may not wish to sell a brand which is like- 
wise sold through chain stores. Nor may two independent dealers 
in active competition wish to sell the same brands of certain products. 
If the use of exclusive agencies is a habitual practice in a trade, a 
manufacturer may not be able to sell to more than one dealer in a 
town or in an urban shopping area unless he has more than one brand 
to offer. Multiple branding may overcome this narrowing effect of 
exclusive agencies by providing a means for more intensive market 
cultivation. It may likewise increase the volume of advertising for a 
company's products in local markets. Co-operation of dealers in local 
advertising is augmented by granting exclusive agencies. If the adver- 
tising is effective in creating demand, the dealer is reasonably sure 
that the benefit will accrue to him through additional sales rather 
than to some other dealer. 

Multiple Brands for One Product in Different Qualities. — The 
practice of quality differentiation through branding may be an expres- 
sion of a conscious attempt on the part of manufacturers to serve the 
market by offering different price lines, or it may be almost forced 
upon them by the nature of the raw materials which they use. The 
packing industry, for instance, has followed the policy of taking all 
livestock offered on the market regardless of quality. This does not 
mean that a particular company will not pick and choose from among 
the livestock offered in order to fill its needs of the moment but that 
it stands ready to take lower-quality animals from sellers. Then, also, 
in the breakup of a carcass different qualities of certain types of meat 
appear. For these reasons, meat packers necessarily produce more than 
one grade of many items, among them ham, bacon, and certain cuts 
of fresh meat. Somewhat the same situation is present in fruits and 
vegetables. Different qualities are necessarily packed, since the quality 
of the raw material cannot be fully controlled. For some products 
of the packing industry, such as lard and vegetable shortening, quality 
is controllable, so there is a choice of alternatives. The packer may 
place only one quality under a single brand on the market, or he may, 
if he believes that there is a substantial demand for the product at 
lower price levels, likewise produce a lower quality and differentiate 
between the two by the use of a secondary brand. 


In most instances it is not desirable to place more than one quality 
of a product under the same brand, especially if the difference in qual- 
ity is both substantial in fact and easily discernible. To do so runs 
counter to the general principle that there should be a considerable 
measure of uniformity of product under a brand. If the consumer gets 
a lower quality at some times than at others, she becomes disgruntled 
and loses confidence in the brand. One or two experiences of this 
character may be excused, as most people have some appreciation of 
the difficulties of attaining perfect standardization. However, con- 
tinued experiences are enough to cause a shift in patronage to some 
to set apart higher quality and more distinctive products through 
other brand and therefore a loss in sales volume. Then, too, failure 
branding limits the possibilities of differential pricing. There is at 
least some possibility of securing a higher average price for total sales 
of a product if quality differentiation is achieved through branding. 

The question arises as to whether it is ever advisable to sell two 
or more qualities of a product under the same brand name. In the 
field of industrial supplies, for instance, this practice would not be 
particularly undesirable because buyers usually have full information 
prior to purchase and therefore confusion as to quality is unlikely. 
Confusion in regard to the quality of consumers' goods is much more 
likely, and the branding problem is thus more complicated. Manu- 
facturers of such products as towels, sheets, and hosiery, in which 
there are recognized price lines, face this problem if they cater to more 
than a limited sector of the market. They may wish to sell to different 
types of retail outlet — for instance, to department stores, smaller inde- 
pendent stores, variety chains, and mail-order houses. If each type is 
interested in only one general level of quality, then quality differentia- 
tion through branding would likewise achieve differentiation by type 
of outlet. Each type of store would then have a particular brand to 
sell, and price comparisons between types would be avoided, as well as 
confusion in the consumers' mind as to what a brand stood for. They 
would not discover that a particular brand was being sold in various 
price lines. Confusion as to quality under the brand would not arise 
if consumers habitually shopped in only one type of retail outlet. 
However, this assumption is not a valid one. The likelihood is that 
a consumer who had purchased a brand covering a high quality might 
subsequently purchase a lower quality under the same brand and that 
the reputation of the brand would thereby suffer. Even within a single 
store more than one price line of a product is usually carried, and some 


measure of confusion is bound to arise unless there is quality differ- 
entiation through brands. In this situation, however, the buyer may 
be shown a number of price lines under a single brand simultaneously 
and thus become aware of the branding policy followed by the manu- 
facturer. Sales people may even be helpful in indicating the variation 
in quality. Under these circumstances confusion as to quality is not 
so likely to arise as when different qualities are sold under the same 
brand in different types of stores. 

There are notable exceptions in practice to the thesis that pro- 
nounced variations in quality call for different brands. There are price 
lines in well-known brands of mens' suits, but the price range is usually 
not great. The Buick Motor Division of General Motors Corporation 
puts out a range of price lines designated individually only by num- 
ber. While there is difference in size, trim, upholstery, and accessories, 
it would probably be argued that there is no difference in basic quality. 
The Cannon Mills produce and sell towels in a wide range of quality 
with no attempted differentiation through brands. It would appear 
that the consumer might expect as high quality in one price line as 
in another, especially if the relative quality was not clearly discernible 
by inspection. As consumers are always on the lookout for bargains, 
there would be at least a tendency to substitute a lower-grade for a 
higher-grade towel if both carried the same brand designation. If a 
manufacturer wishes to trade-down, thereby securing the bulk of his 
sales in the lower-quality lines, association of different qualities through 
branding will be helpful. The reputation of his products as a group 
might, nevertheless, suffer. Purchasers of high-quality towels might 
well prefer a brand which was not so intimately associated with lower- 
quality items. It might be argued that a brand which covers a wide 
range in quality would stand for high quality within recognized price 
lines or for general effectiveness in manufacturing operations with its 
resultant effect on product quality. Despite the advantages of a single 
brand, quality differentiation through branding seems advisable when 
the quality produced by a concern varies widely, when quality is not 
ascertainable by inspection, and when sales are made through different 
types of retail outlet. 13 

Market Coverage of Brands. — Brands may be developed and sold 
initially only in certain sectors of the market. Wider cultivation of the 

13 It is interesting to note in this connection that Cannon Mills makes three grades of 
sheets and that each grade is indicated in the label as being either "Cannon Muslin," 
"Cannon Percale," or "Cannon Finest Quality Percale." Thus there is quality differentia- 
tion, with "Cannon" serving as the common trade-name. 


market may not be immediately contemplated because of limitation 
in production facilities or financial resources. Later, when market 
expansion is attempted, it may be discovered that the use of a brand 
or a trade-mark in other sectors of the national market would encroach 
upon the rights of other concerns which had likewise cultivated a 
limited market. There are numerous cases on record of this type. As 
a result, new brands were developed for other areas in an effort to 
secure more extensive market cultivation. Instances have been known 
in which certain brand names were considered particularly effective 
for certain parts of the national market and were used there and not 
elsewhere. However, faster transportation and communication, to- 
gether with the growth of large-scale industry, have extended the 
geographical coverage of brands. Legal rights in brands are not so 
restricted geographically as formerly, for it can reasonably be assumed 
these days that any brand may be sold throughout the national market 
eventually, even though restricted in sale to a limited area initially. 

Market coverage of brands may be limited by the nature of the 
product and the population elements to which it appeals. Both the 
product itself and the brand may be designed for some particular 
population group — for instance, to Scandinavians or to south-central 
Europeans. Specialized meat products have a market only among 
peoples with certain national origins. If these people are concen- 
trated geographically, as is often the case, the market coverage of 
the brand is necessarily limited. Sex or age may be the controlling 
factor in regard to the number of brands and their market coverage. 
More than one brand may be called for, although the product itself 
under the brands may not be essentially different. One suspects that 
certain toilet products for men and women are much alike, although 
they are sold under different brand names to each sex group. The 
brand name which would aid in the sale of the product to women 
might be singularly inappropriate for sales to men. 

Consolidation of Brands. — The question as to whether brands 
should be consolidated arises under a number of different circum- 
stances. Perhaps, as in the Kroger case previously mentioned, a com- 
pany may become doubtful as to whether individual brands for certain 
products are desirable, inasmuch as consumers do not identify the 
product with the brand name but rather with the company name which 
serves as a family brand. Executives may doubt whether individual 
brands have any particular significance as indicating unusual qualities 
in a product or differing qualities of a particular product or whether, 
with the advertising budget available, brand identification and prefer- 


ence can be established for many products as individually branded 
units. In very large concerns, branding may have been left to particu- 
lar departments which failed to follow uniform policies. This situation 
has been the motivation at times for a thorough review of branding 
activities and discontinuance of some brands. In the meat-packing 
industry, for instance, the number of brands used has been decreasing 
for some years. Horizontal integration of business through mergers 
has brought the problem of brand consolidation to the fore in many 
instances. The possibility of consolidating brands and thus eliminating 
what appears to be costly duplication in promotional efforts is always 
attractive and thus secures attention. 

The type of situation which highlights the problems of brand con- 
solidation is furnished by the merger of the Standard Oil Company 
of New York and the Vacuum Oil Company to form the Socony- 
Vacuum Oil Company, Incorporated. 14 The new company controlled 
a number of operating subsidiaries in various parts of the United States, 
each with is own sectional brands of gasoline and motor oil. The ques- 
tion of quality differentiation by branding also entered into the picture, 
as quality differs markedly in petroleum products, particularly in 
motor oils. It was decided to consolidate the brands in order to permit 
national advertising, to knit more closely the merged units, and to 
utilize more fully the good will already attained for the Mobil brand. 
Lower-grade products were differentiated through separate brands but 
were not advertised. It was also felt that the Mobil brand name was 
a very acceptable one, as it referred directly to the equipment in which 
the company's products were used. 

The reasons for the consolidation of brands should be apparent 
from the foregoing discussion. Here attention will be focused on the 
problems encountered in such consolidation and on possible solutions. 
There appear to be two primary problems: first, to find some means 
of shifting patronage from the old brands to the new brand without 
loss of sales volume and, second, to maintain quality under the new 
brand even though the product may be produced by a number of 
subsidiaries in different locations. The key to the first of these prob- 
lems is adequate publicity. If a company moves slowly in making the 
change and prepares the consumer in advance, so there is full knowl- 
edge that the same quality or even a better quality product can be 

14 For a case analysis of the branding problems presented by this merger see McNair, 
Learned, and Teele, Problems in Merchandise Distribution (New York: McGraw-Hill 
Book Co., Inc., 1942), p. 272. 


procured under the substituted brand, patronage can be shifted success- 
fully. Retail sales people can help immeasurably in avoiding confusion 
during the transition period if they are effectively trained to do the 
job. Direct association of the old and the new brand names, perhaps 
by using both together for an interim period, may induce continued 
patronage. Both brands may be sold for a short time with promotional 
efforts concentrated on the new brand. If the consumer prefers the 
old brand, it will be available for him. In time he will recognize the 
fact that the new brand has all the virtues of the old, and the transition 
between the two brands will be accomplished. If there is no real need 
for the brands being discontinued and if the consolidation of brands 
is properly handled, a substantial loss in sales volume is unlikely. 

In reference to the second problem, that of quality maintenance, the 
solution lies in the establishment of standards and the supervision 
necessary to see that they are adhered to. This problem may not be 
a difficult one if manufacturing operations for the new brand are con- 
centrated in one location. For large companies, particularly after 
mergers, operations may be considerably dispersed, and the attainment 
of uniformity under a brand may necessitate the use of traveling super- 
visors who constantly check the quality of the products being manu- 

Competition with Distributors' Brands 

Manufacturers of consumers' goods are usually confronted with 
competition from distributors' brands, but it varies in intensity from 
product to product and from time to time. With many brands in 
the food, drug, and cosmetic lines there is substantial competition of 
this character. In automobile accessories, particularly in tires, competi- 
tion between manufacturers' brands and those of chain stores, mail- 
order houses, and oil companies which operate service stations was 
exceedingly strong prior to the war and is now being actively resumed. 
Distributors' brands accounted for almost one-third of the sales of 
tires for replacement purposes in 1941. Large and well-known manu- 
facturers produced under these brands. Grocery, drug, and other 
wholesalers have likewise provided severe competition for manufac- 
turers through their private-brand activities. 

When distributors establish their own brands, the broad objec- 
tives which they hope to attain are essentially the same as those 
desired by the manufacturer, i.e., greater control over the market and 
over the marketing process through which control is obtained and 


some measure of independence in price determination. There is the 
possibility of greater control over a whole range of activities, including 
the determination of product characteristics — packaging and labeling, 
warranty and service, expense and pricing, and thus over gross margin 
and net profit. The wholesale distributor, if he so desires, may even 
control the prices at which his brands are sold by retailers to con- 
sumers. He is likewise freed from direct price competition on manu- 
facturers' brands. At times this competition is sufficiently severe to 
reduce gross margin to a low level and net profit to the vanishing-point. 
He may be able to offer the consumer both higher-quality merchandise 
and better values. Often the distributor, through private branding, 
has been able to sell goods. at lower prices and still secure a higher 
gross margin than formerly. Data provided by chain-store companies 
on comparative retail prices of their own brands and manufacturers' 
brands furnish evidence on this point. In one instance the saving to 
the consumer through the purchase of a chain's brands ranged between 
11 and 41 per cent on a group of items, including tea, milk, bread, 
flour, cereal, and beverages. 15 While there was no quantitative evi- 
dence presented in this instance as to variation in quality between the 
two brands of each product, the distributor's brands were successful 
in the market because they sold in considerable volume. It would not 
be argued that either manufacturers' or distributors' brands necessarily 
offer better values to the consumer. Nevertheless, there can be little 
doubt about the fact that distributors are able to offer better values at 
times through purchasing and selling under their own brands. This 
situation may result in increased profits to them and a larger measure 
of stability in both profits and sales volume. 

When a manufacturer is confronted with substantial and increas- 
ing competition from distributors' brands, he may meet that competi- 
tion in a number of ways. If the distributor is large and well financed 
and has some control over a considerable sector of the market through 
the operation of his own retail outlets, it may be advisable to seek 
contracts for manufacture under the distributor's brand. Production 
under both his own brand and those of distributors may lessen the risk 
inherent in concentration on either one or the other and thus provide 
for stability of output at high levels. Or, in contrast, a manufacturer 
may refuse to sell his products to distributors who also carry their 
own private brands. He may feel that this move is justified, inasmuch 

15 Norman S. Rabb, The Future of Private Brands," Proceedings of the Spring Con- 
ference of the American Marketing Association, Boston, Mass., May 16, 17, 1946, p. 134. 


as the distributor may push his own brands and substitute them for 
manufacturers' brands whenever possible. The distributor may give 
assurances that each brand will be given equal opportunity in sales, 
but, nevertheless, the manufacturer may feel that his brands will be dis- 
criminated against in the distributor's outlets. 

Refusal to sell to distributors who sell like products under their 
own private brands may be a shortsighted policy. It is doubtful, in 
most instances, whether sales to other distributors would be augmented 
thereby or at least sufficiently so to compensate fully for the sales vol- 
ume lost. For instance, refusal to sell to wholesalers who had private 
brands would not make a company's products more attractive to chain 
stores. The converse might be argued much more effectively. How- 
ever, refusal to sell to chains or mail-order houses would make a 
manufacturer's products more attractive to wholesale concerns, for 
direct price competition with them on identical products would thereby 
be withdrawn. New wholesale accounts might be secured, whole- 
salers might be deterred from establishing their own brands, and, 
conceivably, some wholesalers might discontinue their own brands 
if a manufacturer of well-known brands stopped selling his merchan- 
dise to mail-order houses and chains. These favorable results would 
be more likely to appear if the fact of direct price competition was the 
sole motive, or at least the dominant motive for the establishment of 
distributors' brands. As noted previously, there are many reasons for 
distributors' brands, any one of which may be controlling in a particu- 
lar instance. Thus the advantages noted may or may not be forth- 
coming. In view of this fact, many large manufacturers have found 
it to their advantage to follow a policy of selling to distributors even 
though they have their own brands which compete directly. The 
manufacturer's brand may compete successfully even at some price and 
promotional disadvantage. Furthermore, the manufacturer's brand 
would continue to be available to those who had developed a prefer- 
ence for it. Then, also, conditions might change to the advantage of 
the manufacturer, thereby reducing the price differential or increasing 
his volume through the inability of the distributor to secure the neces- 
sary volume or the right quality under his own brand. 

Another procedure for meeting the competition of distributors' 
brands is to strive to create a greater measure of consumer acceptance 
for a brand through increased promotional effort. This procedure has 
often been effective, particularly in those instances in which potential 
consumers had not previously been made fully aware of a product's 


unusual characteristics. However, if promotional effort had previously 
been extensive, it might be argued cogently that increasing the promo- 
tional budget would make necessary even higher price and a greater 
price differential favoring distributors' brands. Perhaps a more accept- 
able procedure would be to improve the quality of the product or its 
packaging and labeling. If a manufacturer can actually produce and 
market a product superior to that which distributors can procure under 
their own brands, he may compete effectively in the market even in 
the face of a substantial price differential. 

In any event, the manufacturer should make an honest appraisal of 
the values which he offers the consumer in his brands in relation to 
those which are offered by distributors. He should determine whether 
the distributor's brands are, in fact, of lower, equal, or superior quality 
and if they sell at a lower price to the consumer in relation to quality. If 
distributors actually offer better values, consumers will in time discover 
that fact, and the manufacturer's sales volume will suffer. If the manu- 
facturer has a quality advantage, some sales volume will always be re- 
tained, as there are consumers in high levels of purchasing power who 
will pay whatever amount is necessary, within reason, to secure superior 
products. They do not, however, constitute the greater share of the 
market for consumers' goods in the convenience classification. It is 
always necessary for the manufacturer to watch these price differentials 
closely and to assess the significance of changes in them as affecting de- 

The position of the manufacturer in competition with distributors' 
brands or, for that matter, with other manufacturers' brands is well 
illustrated by the experience of one of the food processors. Sales data 
indicated that a certain high-quality item sold under the company's 
principal brand was not selling well in competition with other brands. 
An investigation was conducted to discover the reasons therefore — 
whether it was a question of incomplete market coverage, a lessening 
of the quality differential, or prices which were out of line with those 
of competitors. It was discovered that practically all dealers carried the 
brand, that the margins taken on it were considerably higher than on 
other brands, but that it was sold in relatively small volume. Appar- 
ently, dealers carried the brand as a matter of prestige or because 
there was a continuous demand for it on the part of certain regular 
patrons. Dealers felt that they should have the brand available for 
consumers, but greater emphasis was placed on competitors' first- 
quality brands, although less well known, and upon secondary brands 


of lower quality. It was also discovered that prices of the brand were 
way out of line with those of other brands. Some difference in price 
could be explained by a quality differential, but the price differential 
was greater than that which could be justified on the basis of quality 
alone. Consumers had apparently discovered this fact and behaved 
rationally by buying other brands. Some consumers continued to pur- 
chase the company's brand — those whose purchasing power was suf- 
ficiently high to allow some preference, for the brand to dictate pur- 
chase despite the price differential demanded by the retail outlet. How- 
ever, the number of these consumers was comparatively few in rela- 
tion to those who were greatly influenced by comparative prices, and 
thus sales volume suffered. The company decided to reduce substan- 
tially its advertising budget for the brand in order to permit lower 
prices to dealers. Steps were likewise taken to change dealers' attitude 
toward the brand, so that it would be priced reasonably and given equal 
opportunity for sale in retail outlets. 

The experience of this concern strongly suggests that sales promo- 
tion for a branded product which does not possess a considerable 
measure of distinctiveness can be carried altogether too far and result, 
through pricing at too high levels, in lost volume and decreased profits. 
This situation frequently is characterized as one in which a manufac- 
turer has advertised and priced his product "out of the market." The 
procedure begins with a real or a simulated difference in quality, as 
the result of which a slight additional increment is attached to price 
for augmentation of profits. The manufacturer may then engage in 
extensive promotional activities, which add to price still further. He 
may then suggest to wholesalers and retailers, either directly or indi- 
rectly, that the product under the brand is more distinctive than com- 
peting products and will therefore warrant the assessment of higher 
profit margins on their part. They may also be induced to do some 
promotional work locally, which is likely to be reflected in the margins 
which they take. The effect is one of cumulative character. The 
margins taken, if on the customary percentage basis, are always applied 
to a higher base figure, in addition to being larger in themselves. As 
a result of this pyramiding, a price differential of one or two cents 
prior to any addition necessary to defray promotional costs may grow 
to many cents in the price differential charged the consumer. While 
it is recognized that a manufacturer may achieve a reduction in other 
costs — for instance, in manufacturing or in physical distribution of his 
products if his promotional activity is successful — still there is always 


the possibility of trading too heavily on an initial quality differential. 
Under such circumstances the manufacturer may offer the consumer 
poorer values than those offered by competitors. 

The foregoing analysis suggests that the distributor has an im- 
portant function to play through his private branding. If the manu- 
facturers' prices get too far out of line, there is always the possibility 
of the distributor's cutting under and offering the consumer better 
values. The possibility of additional gross margin furnishes the incen- 
tive. Such action is more likely to take place during a downward swing 
of the business cycle or during a temporary reduction in business 
activity which affects consumers' purchasing power. Consumers may 
be able and willing to pay higher price differentials during good times. 
However, if business conditions deteriorate, their purchasing power 
must be used more wisely and small price differentials become more 
meaningful. They are thus more receptive to distributors' brands than 
formerly. Differentials are also likely to increase because of greater 
rigidity in prices for manufacturers' brands. If the manufacturer does 
not lower his prices along with a decrease in costs of production or 
promotion, the incentive for the establishment of distributors' brands 
increases. Furthermore, the distributors' sources of supply are improved 
as business conditions deteriorate. He can usually buy at prices which 
do take into account lowered costs. Later, during the upturn of the 
cycle and particularly in a seller's market, distributors may have great 
difficulty in securing acceptable products under their own brands. 
Therefore, we find that the proportion of goods sold under private 
brands varies directly with fluctuations in economic activity. This 
suggests that the manufacturer frequently does not follow the path 
of wisdom in pricing and that he thereby creates his own competition 
from distributors' brands. As stated previously, the solution lies in 
an honest appraisal of the values offered the final consumer and then 
adjustments in price and quality which this appraisal indicates are 
necessary to maintain volume and thwart competition. 


The manufacturer has a twofold problem in reference to the pro- 
tection of trade-marks and other marks. Not only must he strive to 
protect his own marks against illegitimate use by others, but he must 
likewise so act that the rights of others are respected. Both legislation 
and the common law concerning trade-marks have given the trade-mark 


user certain rights. They have also forced him to assume certain 
responsibilities. Both in the initial designing of trade-marks and in 
their later modernization, the manufacturer is under the necessity of 
designing marks which will not cause confusion as to origin between 
his products and those of his competitors. Usually there is no conscious 
intent to copy the mark of another concern or to create too great simi- 
larity. Such situations most often develop inadvertently. Nevertheless, 
cases in the courts in relation to trade-mark rights are numerous, and 
large concerns are frequently engaged in trade-mark litigation. 

Rights in a trade-mark under English common law are determined 
solely by priority in use. This has long been the basis of trade-mark 
rights in the United States. In contrast, under Roman law, which is 
the basis of the legal system in many other countries, trade-mark 
rights are acquired through priority in registration. This difference 
has always been a source of difficulties. For instance, individuals and 
concerns in Latin-American countries have often secured rights within 
their borders to trade-marks originating in the United States by the 
simple act of registering the marks in their own countries. Thus when 
a North American concern wished to sell its products in one of the 
other American republics, it was often discovered that it had no rights 
there in its own trade-marks. Furthermore, many marks have been 
used in the United States, which, for one reason or another, were not 
registrable. Therefore, if two countries had a reciprocal arrangement 
whereby marks registered in one would be legally recognized in the 
other, the rights of a North American concern whose marks were not 
registrable in the United States would not be protected. Most of these 
difficulties between countries with different legal systems were over- 
come by the Trade-Mark Act of 1920, which permitted registration 
of anything deemed to be a trade-mark in foreign countries, such as 
descriptive terms, geographical terms, and configuration of goods. The 
Lanham Act of 1946 did even more to protect the trade-mark owner, 
as the one-year-of-use requirement before registration of the 1920 Act 
can now be waived. 

There have been many cases of conflict arising among domestic 
trade-mark users. As trade-mark rights are acquired through priority 
in use, there has been some doubt in many cases as to the location of 
rights. All trade-marks have been perpetually contestable, and a trade- 
mark owner has never been fully secure in his position. Considerable 
progress in the solution of this problem has been made by the Lanham 
Act, which will be discussed shortly. 


Review of Trade-Mark Legislation 

Most of the states have trade-mark statutes of a sort, some of them 
dating back to 1840. Although some of these statutes may have 
served fairly well while business was primarily an intrastate affair, 
they do not function effectively in an economy which is dominated by 
nation-wide and world-wide commerce. 

The first federal trade-mark statute was the Trade-Mark Act of 
1870. Because it was not based on the federal government's right to 
regulate interstate commerce, it was declared unconstitutional by the 
courts. This was followed by the Trade-Mark Act of 1881, which 
applied to trade-marks used in foreign commerce and in trade with the 
Indian tribes, but not, strangely, to interstate commerce. It was based 
on the treaty-making power. As this omitted the vast bulk of trade- 
marks from regulation and protection, it was far from a satisfactory law. 

The Trade-Mark Act of 1881 was superseded by the Trade-Mark 
Act of 1905, which was based on the commerce clause of the Constitu- 
tion. Besides defining trade-marks which could be registered and out- 
lining the procedure to be followed by applicants for registration and 
by those opposing the registration of certain marks, the Act of 1905 
conferred three principal benefits. It provided that registration of a 
trade-mark should constitute prima facie evidence of ownership of the 
mark. Therefore, in case of conflict, the burden of proof fell upon the 
other party. Owners of registered marks were given the right to sue 
in the federal courts. This was an advantage because the federal courts 
followed a much more enlightened and consistent body of law than 
did the state courts. Finally, the Act provided that the court might 
enter judgment, in the event of a decision favoring the registrant, for 
any sum not exceeding three times the actual damages. 

The Act of 1905 was supplemented by the Act of 1920. This 
Act was primarily designed to aid trade-mark owners who sold their 
goods abroad. Registration in many foreign countries is predicated 
upon domestic registration; yet many trade-marks could not be regis- 
tered under the Act of 1905 and, consequently, could not gain regis- 
tration or protection abroad. The Act of 1920 permitted registration 
of secondary-meaning marks, labels, containers, configuration of goods, 
etc., such as was customary in many foreign countries. The Act of 
1920 conferred no substantive rights. Registration under it did not 
constitute prima facie evidence of ownership. It did, however, give 
both the right to sue in the federal courts and the right to collect 
triple damages. 


The Act of 1905 was not an adequate trade-mark law. By and 
large, it gave few rights not already possessed under common law. 
All substantive rights to trade-marks still arose from ownership, not 
from registration. For purposes of registration it did not recognize 
the possibility of there being more than one rightful owner of the same 
mark. The courts, in applying the common law, on the other hand, 
often declared that under certain circumstances more than one person 
had rights in a trade-mark and therefore might use it. Thus there was 
a conflict between the right to use and the right to register a trade- 
mark. The Act of 1905 did not permit the registration of many marks 
which were actively used in commerce. Under the law of unfair com- 
petition the courts provided protection to marks which were primarily 
descriptive or geographical terms or nondistinctive surnames. The Act 
of 1905, however, did not recognize that such terms or names might 
have acquired a secondary meaning from association with the products 
they were used to identify. No secondary-meaning mark could be reg- 
istered. Thus, such trade-marks as "Elgin," "Waltham," and "Cadillac" 
could not be given the protection of registration. Marks used in the 
identification of services and marks used to certify such things as mode 
of manufacture, conformance to certain standards, regional origin, and 
so forth, were not registrable. 

The Trade-Mark Act of 1905, furthermore, did not give complete 
assurance that a registrant would have the right to continue the use of 
his mark. His mark was perpetually contestable. Cancellation of reg- 
istration proceedings could be brought at any time on the ground that 
a mark did not meet the Act's requirements of registrability or because 
it was in conflict with another mark when the application for registra- 
tion was filed. Also, a mark could not be registered if its owner followed 
a policy of licensing others to use it, regardless of how stringent the 
contract by means of which the licensing was accomplished. If a mark 
was owned by a parent-company, it could not allow its subsidiaries to 
use the mark without losing the right of registration. A trade-mark 
could not be assigned unless the business in which it was used was also 
included in the assignment. 

The first attempt to change the trade-mark law, as it was embodied 
in the Act of 1905, was made in 1922. During the thirties the Vestal 
Bill was before Congress in several years, passing the House twice 
and being favorably reported by the Senate committee on two occa- 
sions. However, it never succeeded in becoming law. The first version 
of the Lanham Act was introduced into the House on January 19, 


1938. It was not until 1946, however, that a revised version was finally 
enacted into law. On July 5, 1947, it became the effective trade-mark 
law of the United States. 

The Lanham Act contains many features which distinguish it from 
previous trade-mark legislation. It partially removes the schism be- 
tween the common law and statutory trade-mark law by permitting con- 
current registration of the same or a similar mark by more than one 
person when, prior to any of the filing dates of the applications in- 
volved, the mark has been honestly used by them independently of each 
other, either on different goods or on similar goods in different sections 
of the country. For the first time in the history of trade-mark legisla- 
tion, registration and the protection it affords are extended to service 
marks (sec. 3). Full recognition is likewise extended to certification 
and collective marks (sec. 4). Under an amendment to the Acts of 
1905 and 1920 passed in 1938, collective trade-marks had become 
registrable and certification marks had been given limited recognition. 
However, their status was clarified and their protection was extended 
by the Lanham Act. The definition of these marks was noted pre- 
viously in this chapter. 

The Lanham Act (sec. 5) provides for the use of registered trade- 
marks by related companies when such use shall inure to the benefit of 
the registrant; and such use shall not affect the validity of such mark 
or of its registration, provided that the mark is not used in such a way 
as to deceive the public. The term "related company" is defined (sec. 
45 ) as meaning 'any person who legitimately controls or is controlled 
by the registrant or applicant for registration in respect to the nature 
and quality of the goods or services in connection with which the mark * 
is used." Consequently, it is now possible for marks which are regis- 
tered by a parent-company to be used by a subsidiary, or vice versa. 
Also, the licensing of trade-marks on a contractual basis, as is done by 
the Coca Cola Company, will no longer prevent registration. 

The new trade-mark law clarifies the rules governing the assign- 
ment of trade-marks. Under the common law a confused situation 
regarding assignment of trade-marks had developed. It was never clear 
whether the entire business had to be assigned in conjunction with a 
trade-mark or whether just that portion of the business to which the 
trade-mark applied had to be included. The Lanham Act clearly pro- 
vides (sec. 10) for the assignment of trade-marks with the good will 
of the business or that part of the good will of the business connected 
with the use of, and symbolized by, the mark. It is specified, however, 


that any assigned registration may be canceled at any time if the regis- 
tered mark is used by the assignee, or with his permission, in such a 
manner as to misrepresent the source of the goods or services sold under 
the mark. 

Before passage of the Lanham Act, secondary-meaning marks, such 
as descriptive, geographical, or surname marks, could be registered only 
under the Act of 1920. 16 They may now be placed on the Principal 
Register when they have become distinctive of the applicant's goods in 
commerce. Proof of substantially exclusive and continuous use for five 
years prior to the date of application for registration constitutes prima 
facie evidence that a mark has become distinctive. They may be placed 
upon the Supplemental Register after only one year of use. Even the 
one-year-of-use requirement may be waived when registration is needed 
to gain protection for the mark abroad. 

There are numerous grounds on which registration may be can- 
celed, some of which were not present in previous legislation. Among 
them are the following: (1) the registration was obtained fraudu- 
lently; (2) the registered mark has been abandoned; (3) the registra- 
tion contains matter absolutely prohibited (sec. 2a, b, c), such as the 
flag, or deceptive or scandalous matter; (4) the mark has been assigned 
and the assignee is so using it as to misrepresent the source of goods or 
services; (5) a certification mark was granted registration in violation 
of Section 4 of the Act; and (6) the mark has become the common 
descriptive name of an article or substance on which the patent has 

16 "Another ground of rejection that has been removed from the trade-mark law is 
the ground that the mark is merely a surname or the name of a firm or corporation. 
Now the mark KEM also happens to be the name of a United States Senator. Under 
the old law we would have been compelled to reject an application for registration of 
that mark on that additional ground. Our practice in the Patent Office was to consult 
fifteen telephone directories of the leading cities. It might very well be that a name, like 
my own, would appear only in another directory than one of the fifteen selected, and 
its registrability would thus depend upon an accident of telephone book selection never 
contemplated by the law, but made necessary by the practical problems of administra- 

"Also under the old law, if there has been a corporation manufacturing steam 
shovels known as KEM, Incorporated, we would have had to reject the proposed mark 
KEM for playing cards on that ground." 

"The elimination of the mere existence of a surname or the name of a corporation 
as grounds for rejection is an extremely fortunate one. For example, if someone 
presented the mark KODAK for registration under the old law, we would have merely 
looked into the Washington telephone directory and found the name of Mrs. Helen 
KODAK and that would have presented an insuperable ground of rejection. Today 
that ground of rejection no longer exists unless the name is primarily merely a sur- 
name." Casper W. Ooms, United States Commissioner of Patents, "The Lanham Act — 
Some Constructive Considerations," a paper read before the Commerce and Industry 
Association of New York at New York City on July 9, 1947, pp. 3-4. 


expired. Certification marks can be canceled on yet other grounds, to 
be discussed later. Two facts are particularly noteworthy and have 
already been the subject of much discussion and apprehension on the 
part of businessmen: first, that rights may be withdrawn because a 
mark has become generic, and, second, that the Federal Trade Com- 
mission has been given the right to apply for cancellation of any mark 
registered on the Principal Register on any of the grounds enumerated. 
The fact that a name has become generic has frequently been the 
reason for a loss of trade-mark rights under common law, but it has 
not previously been recognized in statutory law. A provision that one 
government bureau may appear before another government bureau on 
behalf of the public and seek the cancellation of a trade-mark, however, 
is a highly unusual innovation in trade-mark law. 

The most revolutionary change in trade-mark legislation of the 
Lanham Act is in the provision that marks may become incontestable 
after five years of use. The Lanham Act states (sees. 15 and 33£) that 
trade-mark registrations may, under certain circumstances and with 
certain exceptions, become "incontestable" upon the filing of an affi- 
davit by the registrant at the end of a five-year period subsequent to 
registration, setting forth that the mark has been in continuous use for 
such a period. The certificate of registration thereby becomes con- 
clusive evidence of the registrant's exclusive right to use the mark in 
commerce on those goods or services specified in both the certificate 
and the affidavit of use, and conclusive evidence of his right to prevent 
others from using the mark except when certain defenses or defects are 
established. These defenses or defects are the grounds previously 
enumerated in regard to cancellation of trade-mark registration. How- 
ever, in addition it is provided that the right of incontestability may be 
challenged on the ground that the mark has been or is being used to 
violate the antitrust laws of the United States. This basis of challenge 
will be discussed later. The mark will remain incontestable, but the 
registrant will lose his right of exclusive use if another user of the 
registered mark gains the rights of a concurrent user. Moreover, ex- 
clusive rights will be lost if another user is employing the mark, other 
than as a trade or service mark, in such manner that it is either a use 
of the name of a party connected with a business or a term which is 
descriptive of the goods or services being offered or their geographical 

To achieve incontestability a mark must meet the following condi- 
tions: ( 1 ) It must be in use and must have been in continuous use in 


commerce for at least five years subsequent to registration. (2) There 
must have been no final decision adverse to the registrant's claim of 
ownership or his right to keep the mark on the Register. (3) There 
must be no pending litigation involving the owner's rights in either 
the Patent Office or the courts. (4) Within one year subsequent to 
the expiration of any such five-year period the registrant must file an 
affidavit with the Commissioner of Patents setting forth that the above 
conditions exist. (5) The mark must not have become the generic 
name of an article. 

The Lanham Act recognizes that modern business is dynamic and 
that such factors as shifts in the channel of distribution employed, 
package changes, and change in display technique may require changes 
in the trade-mark also if it is to be employed effectively. It is provided 
(sec. Id) that certificates of registration may be amended for good 
cause shown. The registration as amended, however, shall still contain 
registrable matter, and the mark as amended shall still be registrable 
as a whole. The amendment must not involve changes that alter the 
general character of the mark. 

Under previous trade-mark legislation, registration was granted for 
a twenty-year period and during that period nothing had to be done 
by the registrant to keep his registration in force. The result was the 
accumulation of much "dead wood" on the Register. Many registered 
marks were not in use; yet others were prevented from using them. To 
correct this situation, the Lanham Act provides (sec. 8a) that a cer- 
tificate of registration shall still remain in force for twenty years but 
that it shall be canceled after only six years unless during the sixth 
year the registrant files with the Commissioner of Patents an affidavit 
showing (1) that the mark is still in use or (2) that its nonuse is 
due to special circumstances which excuse such nonuse and is not due 
to any intention to abandon the mark. This applies to marks registered 
on either the Principal or the Supplemental Register. 

Restrictions on Registration 

The Lanham Act permits the registration of a wider variety of 
marks than previous legislation. However, there are still certain re- 
strictions upon registration which should be noted. Restrictions upon 
registration on the Principal Register are as follows (sec. 2) : 

1. A mark must be in actual use in commerce at the time regis- 
tration is granted. 


2. A mark must be capable of distinguishing the goods or serv- 
ices of the applicant for registration from the goods or services of 

3. A mark must not consist of or comprise immoral, deceptive, 
or scandalous matter or matter which may disparage or falsely suggest 
a connection with persons, living or dead, institutions, beliefs, or 
national symbols, or bring them into contempt, or disrepute. 

4. A mark must not consist of or comprise the flag or coat-of- 
arms or other insignia of the United States or any state, municipal, or 
foreign government. 

5. A mark must not consist of or comprise a name, portrait, or 
signature identifying a particular living individual except by his written 
consent, or of a deceased President of the United States during the life 
of his widow without her written consent. 

6. A mark must not so resemble another mark in use as to be 
likely to cause confusion or mistake or to deceive purchasers. How- 
ever, concurrent registration may be granted by the Commissioner of 
Patents or a court of appeals when both claimants have become entitled 
to use marks as a result of their concurrent lawful use thereof in com- 
merce prior to any of the filing dates of the applications involved and 
such concurrent use is not likely to cause confusion or mistake or to 
deceive purchasers. 

7. Secondary meaning marks cannot be registered unless substan- 
tially exclusive and continuous use for five years prior to the date of 
application for registration can be proved. 

Qualification for registration upon the Supplemental Register is 
relatively more simple. The mark must still meet the first five require- 
ments noted as prerequisites for registration upon the Principal Reg- 
ister. However, the mark need not be a technical trade-mark. The 
Act allows registration on the Supplemental Register of any trade- 
mark, symbol, label, package, configuration of goods, name, slogan, 
phrase, surname, geographical name, numeral, or device or any com- 
bination of the foregoing, but such mark must be capable of distin- 
guishing the applicant's goods or services. 

Procedures Affecting Registration 17 » 

Registration of a trade-mark is not a particularly difficult or an 
expensive process. There are, however, certain definite procedures 
which must be followed: 

17 See "Rules of Practice in Trade-Mark Cases," Federal Register, June 19, 1947 
(Part 100 of Title 37). 


1. Registration requires a written application specifying the appli- 
cant's domicile and citizenship, the date of the applicant's first use of 
the mark in commerce, the goods in connection with which the mark 
is used, and the mode or manner in which the mark is used in connec- 
tion with such goods. The application must include a statement to the 
effect that the person making the application believes himself to be 
the owner of the mark sought to be registered, that the mark is in use 
in commerce, and that no other person, firm, corporation, or associa- 
tion, to the best of his knowledge, has the right to use such mark or 
a mark in such near resemblance thereto as might be calculated to 
deceive. However, if the applicant is claiming concurrent use, he shall 
state exceptions to his claim of exclusive use. The application must 
be accompanied by ( 1 ) a drawing of the mark, ( 2 ) such number of 
specimens or facsimiles of the mark as actually used as may be required 
by the Commissioner, and (3) payment of the required fee (sec. \a 
and b ) . 

2. The Act provides (sec. \2a) that upon the filing of an applica- 
tion for registration the application shall be referred to the examiner 
in charge of the registration of marks, who shall cause an examination 
to be made and, if, on such examination, it shall appear that the appli- 
cant is entitled to registration, the mark shall be published in the 
Official Gazette of the Patent Office. 

3. Section 13 of the Lanham Act states that any person who be- 
lieves he would be damaged by the registration of a mark upon the 
Principal Register may, upon payment of the required fee, file a verified 
notice of opposition in the Patent Office, stating the grounds therefor, 
within thirty days after the publication of the mark sought to be regis- 
tered. For good cause shown, the time for filing notice of opposition 
may be extended by the Commissioner. 

4. It is provided (sec. 14) that any person who believes that he 
is or will be damaged by the registration of a mark on the Principal 
Register or under the Acts of 1881 or 1905 may, upon the payment of 
the prescribed fee, apply to cancel a registration ( 1 ) within five years 
from the date of registration under the Lanham Act or (2) within five 
years from the date of publication under Section 12^ of a mark regis- 
tered under the Acts of 1881 and 1905 under certain circumstances 
and at any time under others. 

5. Each registration may be renewed for periods of twenty years 
from the end of the expiring period upon the filing of an application 
therefor, accompanied by an affidavit stating that the mark is still in 
use in commerce and a renewal fee (sec. 9). It should also be noted 


here that during the sixth year after the mark is first placed on the 
Register the applicant must file an affidavit stating that the mark is still 
in use or proving excusable nonuse. Also, after any five-year period of 
continuous use, the registrant can apply for incontestability. 

6. Registrations granted under the Act of 1881 or the Act of 
1905 shall continue in full force and effect for their unexpired term 
(sec. 46b). Such registrations may be renewed under Section 9 of the 
Lanham Act, but such registrations and their renewals may be canceled 
at any time upon a showing of legal damage as recognized under these 
prior acts. Such registrants, however, may claim all benefits of the 
Lanham Act by filing, at any time after July 5, 1947, an affidavit set- 
ting forth specified data and information. The marks must be regis- 
tered under the new act for five years before they can become incon- 

Registrations under the Act of 1920 expire six months after July 
5, 1947, or twenty years from the date of their registration, whichever 
date is later. They may not be renewed unless renewal is required to 
support foreign registrations, in which event renewal on the Supple- 
mental Register may be effected under Section 9 of the Lanham Act 
(sec. 46b). 

Advantages Acquired through Registration 

Under the Lanham Act registration confers more benefits upon 
trade-mark owners than did registration under any previous trade-mark 
law. Some of these were available under the Act of 1905. Others are 
granted for the first time under the Lanham Act. The most important 
advantages of registration on the Principal Register are as follows: 

Registration Is Constructive Notice of Registrant's Claim of Own- 
ership. — Section 22 provides that registration of a mark on the Prin- 
cipal Register or under the Acts of 1881 or 1905 "shall be constructive 
notice of the registrant's claim of ownership." There always existed 
uncertainty as to whether registration of a mark under the Act of 1905 
would give protection to the mark in territories in which the mark 
was not as yet used. Because, under the Lanham Act, registration is 
notice, no person can start to use the mark in any area, once a mark 
has been registered, and claim that he was unaware of the registrant's 
prior claim to the mark. To gain the rights of a concurrent user he 
must have used the mark before the application for registration was 

Registration of a Mark Allows Cases of Infringement To Be Tried 
in a Federal Court. — This is an advantage to trade-mark owners for 


two reasons. First, federal courts have in the past followed more en- 
lightened legal precedents than have most of the state courts. The 
states have, in essence, forty-eight varieties of the common law, and 
thus confusion results. Second, the Lanham Act provides statutory 
protection against infringement of a registered mark (sec. 32) when- 
ever the infringing mark "is likely to cause confusion or mistake or to 
deceive purchasers as to the source of origin of such goods or services." 
This is much clearer than any principle previously enunciated under 
the common law and should offer greater protection to registered 
marks against all efforts on the part of others to capitalize on the good 
will which they represent. Of course, this protection is available only 
in the federal courts. 

Registration Is Prima Facie Evidence of Ownership. — If a mark is 
registered on the Principal Register, the burden of proof, in case of 
conflict, is placed upon the other party. As proof of priority of use is 
often a difficult, expensive, and laborious task, it is of great advantage 
to have the opposition assume the burden. This advantage was also 
available under the Act of 1905. 

Registration Affords Protection against Infringing Goods Imported 
from Abroad. — Marks registered on the Principal Register are filed in 
the United States Treasury Department and are referred to in order to 
stop the importation of goods which might infringe the mark of the 
registrant. Although alternative methods of stopping the importation 
of infringing goods may be available, they are more cumbersome and 
less effective. 

Registration Requires Prior Investigation of a Mark. — Although 
this might appear to be a relatively intangible advantage, it does afford 
fairly convincing evidence to the registrant at an early date whether 
his rights will be contested. Such investigation may save him much 
trouble and expense later. 

Possible Collection of Triple Damages. — Under the Lanham Act, 
as under the Act of 1905, the courts may award, in the case of a deci- 
sion favoring the registrant, judgment "for any sum above the amount 
found by the verdict as the actual damages, according to the circum- 
stances of the case, not exceeding three times the amount of the verdict 
together with the costs" (sec. 35 ) . Aside from the most obvious benefit 
of this provision, it should also serve to deter any party contemplating 
infringement of a registered mark. 

Aspects of Incontestability. — It was noted above that the Lanham 
Act provides that a mark may, under certain circumstances and with 
certain exceptions, become "incontestable" after being on the Principal 


Register for five years. This substantive right was not granted by prior 
trade-mark legislation. Claims have been made that the incontestability 
provision is so hedged about with amendments that it offers little pro- 
tection to the registrant. These contentions will be discussed later. 
Suffice it to say here that, although the provision might well provide 
greater advantage to the registrant than it does, it will be of aid. One 
is reasonably well assured, once incontestability is gained, of continuing 
to possess the right to use his mark if he observes certain requirements, 
although there is a possibility that use of the mark might have to be 
shared with others. 

The Supplemental Register was conceived primarily for one pur- 
pose, namely, to give protection to trade-mark owners when selling 
their goods in foreign countries. As this is the principal purpose of the 
Supplemental Register, it is logical that it is also the primary advantage 
to be gained by registration on it. Rights to trade-marks in many 
foreign countries derive from registration, and an unregistered mark is 
given no protection whatsoever. In the United States rights are acquired 
from priority in use. Also, registration in many of these foreign coun- 
tries can be had only for marks which are registered in the seller's own 
country. Thus a United States concern selling abroad may be able to 
gain no protection for its mark unless it has been registered in the 
United States. Yet many things which are deemed to be trade-marks in 
foreign countries are not so recognized here and cannot be registered 
on the Principal Register. The Supplemental Register is designed to 
permit the registration of anything that other countries consider regis- 
trable matter. A mark which does not qualify for registration on the 
Principal Register can be placed on the Supplemental Register and can 
then also be registered in the foreign country concerned. Protection of 
the trade-mark in the foreign country is thereby achieved. In addition, 
registration on the Supplemental Register gives the registrant the right 
to sue in the federal courts and also the right to collect triple damages 
in the case of a decision in his favor. 

The reader should recognize that there are many advantages to be 
gained by registration on the Principal Register which are not available 
to a registrant whose mark is recorded on the Supplemental Register. 
Specifically, marks on the Supplemental Register (sec. 26) ( 1 ) are not 
prima facie evidence of the registrant's ownership; (2) are not con- 
structive notice of the registrant's claim of ownership; (3) may not 
become incontestable; (4) may be subject to cancellation at any time 
at the instance of any person who believes he is or will be damaged; 


(5) may not be involved in interference; (6) may not, like registra- 
tions on the Principal Register, be filed in the Treasury Department or 
be used to stop importations (sec. 28). 

Comments on Important Provisions of the Lanham Act 

At the time this is being written (summer, 1947) the Lanham Act 
has just gone into effect. It is not fully clear what problems will arise 
under it and what its strong and weak points, from a practical point of 
view, will be. Any comments must be of a conjectural character at 
this time. Nevertheless, an analysis of the Act itself and a theoretical 
application of it to the problems of the business community allow 
certain tentative conclusions to be drawn. It should prove profitable 
to submit the Act's most important provisions to a relatively brief 

Concurrent Registration. — Concurrent use of trade-marks has long 
been recognized under the common law, 18 but concurrent registration 
of trade-marks was not provided for in any trade-mark legislation prior 
to the Lanham Act. This conflict between the statutory and the com- 
mon law led to considerable confusion and often to inequity. It was 
the first user in interstate commerce whom the Patent Office initially 
recognized as having the right of registration. At some later date, 
however, someone who had never attempted to register his mark and 
was completely unknown to the first registrant could come forward and 
charge the registrant with infringement, claiming prior use. The courts 
might, under the common law, grant each party the right to use the 
mark, but in different territories. One party, however, could be pre- 
vented from gaining the benefits of registration. The Lanham Act now 
removes this conflict and grants the right of concurrent registration to 
more than one user, when, prior to any of the filing dates of the 
applications involved, the mark has been honestly used by them in- 
dependently of each other, either on different goods or on the same 
type of goods in different sections of the country. 

There can be little doubt of the advisability of granting concurrent 
registration if the right of concurrent use is to be recognized, as it has 
been so frequently by the courts. Yet, while it can strongly be argued 
that the rights legitimately acquired by each of two or more parties to 
the same trade-mark should be protected, still it is not desirable from 

18 For typical rulings on this point under the common law see : Hanover Milling Co. 
v. Metcalf, 240 U.S. 403; U.S. Drug Co. v. Theo. Rectanus Co., 248 U.S. 90; Griggs v. 
Cooper, 279 U.S. 156. 


the consumers' point of view that more than one party should have 
concurrent rights in a mark. One of the basic purposes of trade-mark 
legislation is the protection of the consumer. The consumer is not fully 
protected unless the trade-mark borne by an article assures him that 
various purchases of the same article under the same mark will be of 
the same quality. If two or more manufacturers are allowed to use the 
same mark, quality under the mark is not likely to be identical. The 
fact that the two manufacturers may each be allowed to sell under the 
mark only in certain parts of the national market is incomplete protec- 
tion to the consumer. Population in the United States is mobile. The 
consumer who purchases toothpaste in New York one week may pur- 
chase it in Los Angeles or Chicago the next week. Under concurrent 
registration he may get a different manufacturer's product and one of 
dissimilar quality. Furthermore, as business is dynamic, a restriction of 
the area in which a concern can make sales under its trade-mark is 
contrary to an inherent tendency toward expansion. If a firm uses 
national publications for advertising, triers is a waste incurred if sales 
cannot be made in all parts of the national market. Breaking up the 
national market into various "private" markets through granting con- 
current rights in a trade-mark tends to reduce sales volume for each 
concern and to increase both their production and distribution costs. 
Thus there is some question as to whether the rights of concurrent use 
and concurrent registration should be granted. 

This conflict between the recognition of rights in trade-marks legiti- 
mately acquired and the desirability of single, rather than dual or even 
multiple, ownership and use cannot easily be resolved. Nevertheless, 
the frequency of occurrence of the conflict can be reduced in the future, 
and probably will be through the passage of the Lanham Act. As noted 
previously, Section 22 provides that registration of a mark "shall be 
constructive notice of the registrant's claim of ownership." After a 
mark has been registered in the manner provided, other persons or 
firms cannot begin to use the same mark in particular sections of the 
market and claim unawareness of the registrant's mark. The burden of 
making a careful search to determine whether there are other marks 
registered which resemble the one which he desires to use is placed 
upon the newcomer. He can no longer be an innocent infringer of a 
mark registered by another party. In order to have any right in a mark, 
use must have started before registration by another party. Therefore, 
it is likely that there will be fewer and fewer cases, as time goes on, in 


which there is a legitimate basis for granting the right of concurrent 
registration and use, although this is provided for in the Act. Accord- 
ing to Casper W. Ooms, Commissioner of Patents, "the possibility of 
the accrual of concurrent rights is greatly diminished and may even in 
time be shut off entirely." 19 

Another barrier to single ownership and use is the fact that the 
Congress can legislate only with respect to interstate trade. This is not 
so great a barrier as formerly because of the greater mobility of goods 
and services across state boundaries through improved means of trans- 
portation and communication. Yet the Congress must recognize that 
the several states control trade-marks used solely within their borders. 
Therefore, completely to eliminate concurrent use of marks would re- 
quire federal government control of intrastate trade. While the best 
solution, if possible, would be to grant both the rights of registration 
and the use of a mark to only one party, this cannot be done without 
an amendment to the Constitution. Then compulsory registration of 
all marks with the federal government would be possible. There would 
be no excuse for two parties both adopting the same trade-mark, since 
all marks would be on file and available for ready search. The Registers 
would serve as comprehensive search files available to all interested 
parties. Barring a constitutional amendment, however, we must con- 
clude that the Lanham Act does about all in this area of controversy 
and conflicting claims that can be achieved at the present time. Briefly, 
the Act offers concurrent registration when the right to concurrent use 
can be established. At the same time, it reduces the likelihood of con- 
ditions arising under which there is a legitimate basis for concurrent 
use and registration. 

Use by Related Companies. — Under previous trade-mark legislation 
a company could not secure registration of its marks if they were used 
by its subsidiaries. A significant part of business today is done by corpo- 
rations acting not by themselves but through related companies. These 
are usually fully controlled; but for reasons pertaining to finance, taxa- 
tion, or labor, separate corporate entities are established. Also, the 
licensing of the right to use certain trade-marks on a contractual basis 
is common practice. There was some uncertainty about the effect of 
this practice on trade-mark rights. Because of this uncertainty, many 
important marks have never found their way to the Register of the 
Patent Office. In regard both to use by related companies and to licens- 

44 Ooms, op. cit., p. 159. 


ing, trade-mark legislation had failed to keep up with changes in busi- 
ness practice. 

The Lanham Act permits the use of trade-marks by related com- 
panies and by licensees without affecting the rights in the mark, 
including the right of registration. It does, however, establish certain 
requirements which assure that use will not be abused. The registrant 
must control the nature and the quality of the goods and services in 
connection with which the mark is used. The mark must not be so 
used as to deceive the public, and the use must inure to the benefit of 
the registrant. Thus it would appear that the Lanham Act clears up an 
area of uncertainty by recognizing legitimate business practices and 
according certain trade-mark rights, although these practices are fol- 
lowed. It also provides some assurance that the rights granted will 
not be abused. 

Assignment. — At one time it was a basic principle of the common 
law that a trade-mark could not be assigned unless the entire business 
in which it was used was assigned simultaneously to the same person. 
This principle derived from the idea that the primary purpose of a 
trade-mark was to indicate origin, and that assignment of a trade-mark 
without the simultaneous assignment of the entire business would cause 
a mark to fail in this function and result in deception of the public. 
As the line of products manufactured by a single concern became more 
varied, and it was frequently desired to assign one trade-mark but 
continue the use of others, the courts began to alter this common-law 
principle. In some cases it was held that a trade-mark could be assigned 
with the simultaneous assignment of only that part of the business in 
which it was used. However, there was so little consistency upon this 
point that even the trade-mark lawyers who helped to frame the Lan- 
ham Act were not clear as to what the common law provided. 20 The 
Lanham Act does clarify the matter. It specifically provides (sec. 10) 
for assignment of trade-marks with "the goodwill of the business" or 
"that part of the goodwill of the business connected with the use of and 
symbolized by the mark." That this is a step forward cannot be doubted. 
Nevertheless, United States law on this point is still much more 
stringent than is the law of most other countries. Almost every major 
country in the world with a well-established body of trade-mark law, 

20 See Hearings before the Committee on Patents, Subcommittee on Trade-Marks, 
House of Representatives (76th Cong., 1st sess.) on H.R. 4744 (Washington: U.S. 
Government Printing Office, 1939), PP- 79-94. 


except the United States, now allows the free assignment of trade- 
marks, that is, assignment of the trade-mark alone. 

The reasoning followed by other countries is well summed up in 
the following quotation from the report of a Royal Commission ap- 
pointed by the British government to study this subject prior to the 
time its own law pertaining to the assignment of trade-marks was 
amended. It reported: "Our law governing the assignment of trade- 
marks is based upon the theory that a trade-mark owes its value to the 
goodwill and reputation of the business concerned. Under modern 
conditions of trading, the tendency is for the business to be built up 
around the trade-mark, and the commercial view today is that the 
goodwill of a business frequently is inherent in the trade-mark itself. 
The Statute and common law on the subject are based largely upon 
obsolete conditions and take no account of this change in view." 21 
Nevertheless, in the Lanham Act we have retained the idea that a 
trade-mark owes its value to the good will of the business concerned. 

It is doubtful whether the assignment of a trade-mark without 
simultaneous assignment of the business in which it is used will serve 
to deceive the public. First, consumers generally are primarily con- 
cerned with having assurance that consecutive purchases of the same 
brand will yield them the same quality of merchandise. They are only 
secondarily interested in what concern produces the merchandise. 
Second, forcing assignment of a business in conjunction with a 
trade-mark will not necessarily prevent deception. Whether a business 
is assigned with a trade-mark or not, the management of a business 
may change hands through reorganization, sale, or merger. It is the 
management which decides whether or not the quality of the goods 
under a trade-mark shall be held constant or changed. The manner in 
which the mark is used by the assignee determines whether or not 
deception will be present, rather than the fact of assignment. 

Registration of Collective, Service, and Certification Marks. — Full 
recognition of the fact that service marks and certification marks are 
deserving of the same protection as are trade-marks proper has long 
been overdue. Recognition was given to collective marks in an amend- 
ment, passed in 1938, to the Acts of 1905 and 1920. The Lanham Act 
recognizes the need for protection of these marks and makes all essen- 
tial provisions to assure that such marks will henceforth have a status 

21 Board of Trade, Report of the Departmental Committee on the haw and Practice 
Relating to Trade-Marks (London, 1934), sec. 107. 


equal with trade-marks. To illustrate the situation which existed in 
the past, witness the difficulties encountered by Underwriters' Labora- 
tories, Incorporated, an independent product testing organization. 22 Its 
mark, when borne by an article, indicates that the article complies with 
certain standards of quality and implies a warranty. The mark has been 
very extensively counterfeited. The public has not only been deceived 
but likewise subjected to a source of real danger, because the mark may 
be borne by goods which, if improperly used, are capable of injuring 
consumers. Because this mark of approval was not technically a trade- 
mark, it was not accorded protection under the Act of 1905. The 
common law gave very incomplete protection. Other illustrations of 
similar type are available from the Hearings. 23 

Under certain provisions of the Lanham Act (sec. 14), registration 
of certification marks may be canceled. Action leading toward cancel- 
lation may be taken by any person who believes that he is being or 
will be damaged, or by the Federal Trade Commission. This is the first 
time in the history of trade-mark law in which a government agency 
has been authorized to apply to the Patent Office for cancellation of a 
registered trade-mark. Furthermore, such application may be made at 
any time, not only within the first five years after the date of regis- 
tration. Thus the Federal Trade Commission assumes considerable 
authority over the use of certification marks. 

The bases for cancellation peculiar to certification marks are four 
in number. First, registration of a certification mark may be canceled 
if jt can be shown that the registrant does not or cannot control its use. 
This provision for cancellation seems eminently reasonable although 
its administration may prove difficult. If the registrant has little control 
over the use of his mark; if his product testing is inadequate fully to 
assure that prescribed standards are adhered to by users of the mark; 
or if the standards themselves are not of reasonably high level, the 
consumer, in the purchase of goods, may be hindered, rather than aided, 
by the presence of the mark. If a mark is being applied indiscriminately 
to both superior and inferior goods by anyone who wishes to appropri- 
ate it to his own use, the mark should be canceled, for it has lost all 
positive significance and may serve to delude the consumer. In view 
of the right of the Federal Trade Commission to apply for cancellation, 
rules and regulations in reference to control, including testing, will 

22 Hearings before the Committee on Patents, Subcommittee on Trade-Marks, House 
of Representatives (75th Cong., 3d sess.) on H.R. 9041 (Washington: U.S. Govern- 
ment Printing Office, 1938), pp. 133-34. 

23 Ibid., pp. 124, 129-30. 


probably emanate from that body, or at least be subject to its review. 
While it is recognized that the decisions as to what constitutes effective 
control may be reasonable or otherwise, still it does not appear likely 
that certifying agencies will have much difficulty as an outgrowth of 
this provision for cancellation. 

Second, registration of a certification mark may be canceled if the 
registrant himself produces or markets goods to which his mark is 
applied. This provision is under strong attack by many parties, among 
them the Commissioner of Patents. It apparently limits the registration 
of the certification mark to the marks of independent laboratories 
which stand as a relatively unbiased third party between the manu- 
facturer and the consumer. It can be argued that a certification mark 
used directly by a manufacturer, as well as by others, would possess 
little intrinsic value as evidence of unbiased judgment as to the quality 
of the goods to which it was applied. If the registrant of a certification 
mark wished to begin the manufacture of a product under the mark, he 
could probably obtain a trade-mark in lieu of his certification mark and 
then license its use to others. However, if the certification mark refers 
to a process rather than a physical product, complications appear. One 
foreseen by the Commissioner of Patents is as follows: 

The exception which I regard as particularly unfortunate is the second of 
those enumerated which forbids the continued registration of a certification 
mark where the owner "engages in the production or marketing of any goods 
or services to which the mark is applied." I think of a possibility like this: A 
manufacturer of metal products devises a unique and unusually effective process 
for the rustproofing of the metal over which further treatment is applied. He 
is willing to license this to other users of metal products provided they will 
mark the material with the mark which he has adopted to identify this par- 
ticular treatment. In fact, those who seek to use the process seek the right to 
use that mark as distinguishing the new characteristics which the treatment 
produced in the sheet metal. 

If the owner of the certification mark may license these users and may give 
them the right to employ the same identification mark which he uses to dis- 
tinguish this treatment, you have a broadening of the competition in the product 
thus treated. Yet, the statute forbids the owner of that certification mark, if he 
chooses to license others, from continuing in the production or sale of the goods 
which are marked with that certification mark. The inevitable effect of this 
limitation upon certification marks is that there will be either a disinclination 
on the part of the owner of the mark from licensing his competitors, or the 
complete refusal of the owner of the mark to register the mark in the United 
States Patent Office. In either event the public suffers. 24 

Ooms, op. cit., p. 159. 


In circumstances such as these it would appear that the public interest 
would be better served if the registrant was allowed to retain his 
certification-mark registration even though he began to apply the mark 
to his own product as well as to permit its use by others. 

Marks such as those which have been or may be developed by large 
department stores or mail-order houses to signify that the merchandise 
which they sell has been tested in their own laboratories would not be 
eligible for registration. Under these circumstances the merchandising 
institution occupies much the same position as the independent testing 
laboratory as an arbiter between the producer and the consumer, but 
registration of its mark is not allowed. However, it is doubtful whether 
merchandising institutions need the protection afforded by registration 
of a mark. It is not necessary that they certify a product broadly, but 
only to their own customers. As they control the sales of the products 
which they certify through their own retail outlets or through mail- 
order procedures, it is not so likely that their marks will be infringed 
upon. If they wish to assure their customers that they select merchan- 
dise wisely and in the customer's self-interest through extensive testing 
activities, they may do so. It is considered unlikely that they will be 
enjoined from such action by any interpretation of the various pro- 
visions of the Lanham Act, but protection of their marks is denied other 
than under common law. 

Third, registration of a certification mark may be canceled if the 
registrant permits the use of his mark for purposes other than as a 
certification mark. The significance of this basis for cancellation is 
difficult to assess. Presumably, those individuals responsible for the 
Act felt that there would be less confusion and less likelihood of decep- 
tion if a mark of this character were used only for certification purposes. 
Administration of this provision will probably be difficult, because in 
a very real sense all marks are certification marks, since they indicate 
that certain standards of quality have been met. Strict adherence to the 
definition of a certification mark (sec. 45 ) would preclude its use on a 
product manufactured by the registrant of the mark; therefore, this 
basis for cancellation reinforces the one previously discussed. 

Fourth, registration of a certification mark may be canceled if the 
applicant "discriminately refuses to certify or to continue to certify the 
goods or services of any person who maintains the standards or con- 
ditions which such mark certifies." This provision will run counter to 
accepted practice because, before the Lanham Act, certification marks 
were often restricted to use by one producer in an industry or of a type 


of product. There was a degree of exclusiveness in use of the mark 
now denied by the Act. Use in this manner did serve to indicate to the 
consumer that an article met certain standards. However, such use 
conveyed the impression that the good bearing the certification mark 
was of higher quality than others. Under the Lanham Act it is pos- 
sible for all manufacturers to avail themselves of a registered certifica- 
tion mark by meeting prescribed standards. Therefore, the implication 
of higher quality through certification must be shared. This does not, 
of course, indicate to the consumer which goods are better than others, 
but it does indicate which goods are equal to or above certain prescribed 
minimum standards, thus narrowing the field of choice. 

From the point of view of the certifying agencies, this fourth basis 
for cancellation will probably have both negative and positive aspects. 
As yet, they do not know just what will be expected of them by way 
of nondiscriminatory practice. Rules and regulations in reference to 
certification marks have not been issued (summer, 1947) by the Patent 
Office; nor is there much indication as yet in regard to the probable 
attitude of the Federal Trade Commission, other than that evidenced 
by the Good Housekeeping case. The necessity for certifying the goods 
of all concerns which make application and indicate their willingness 
to meet prescribed standards will not appreciably affect the policies and 
procedures of the publishing companies and professional associations 
which furnish certification marks, for they have not operated under a 
principal-client relationship, as have the commercial laboratories. The 
laboratories have sold a testing service with certification as a by-product 
usually included within the charge for product testing. The prospect of 
some measure of exclusiveness in the use of the certification mark may 
have been a factor in securing patronage. 

The laboratories have attempted to secure as clients concerns with 
good products and sound policies in production and promotion. Further- 
more, they desired concerns with a certain uniformity in product qual- 
ity, in reputation, and in business practice because it was necessary 
that these concerns co-operate fully and maintain an interest in the 
integrity of the certification mark. All concerns which use the mark of 
a testing laboratory have, in a very real sense, leagued themselves 
together. The failure of one to maintain a satisfactory reputation, either 
in product or policy, may damage all. Moreover, failure of a concern 
to co-operate fully in the past — in particular, by taking prompt rem- 
edial action if goods being placed on the market did not meet the pre- 
scribed standards — was followed by termination of the agreement by 


the laboratory. The laboratory then had the right to choose its own 
customers, but now this right has been at least in part withdrawn by the 
Lanham Act. 25 There may likewise be some objection on the part of 
present clients to others who may demand the use of a mark. On the 
other hand, the laboratories may get a considerable volume of new busi- 
ness, since the services which they furnish may be more attractive to 
other concerns in view of the new status of the certification mark under 
the Lanham Act. Moreover, if present clients object to additional 
clients, a laboratory can point to the provision of the Act which requires 
it to accept new patronage. Some measure of customer selection will 
still be retained as an outgrowth of the rigorous requirements placed 
upon the client as a condition of permission to use the certification 
mark. Some concerns will be unwilling to meet these requirements or 
to incur the cost involved. It is not likely that the Patent Office will 
interfere greatly with the commercial laboratories in regard to require- 
ments or charges so long as they test products adequately and act in a 
nondiscriminatory manner. 

It is inherently reasonable that service, certification, and collective 
marks be afforded the protection which is now given through registra- 
tion under the Lanham Act. In fact, service is provided by those who 
furnish certification and collective marks. There is utility in service as 
well as in a physical product. Also, there is at present a much greater 
prevalence of service as a "commodity" than formerly. The cost of 
services has used an ever increasing proportion of consumers' purchas- 
ing power. Yet, both prior trade-mark legislation and the common law 
reflected periods when practically all commerce was in physical prod- 
ucts. In a modern economy involving nation-wide services, a business- 
man's protection would be incomplete unless he could have as extensive 
rights in service and certification marks as in trade-marks proper. 

Secondary Meaning Marks Registrable. — The provision of the Lan- 
ham Act which makes secondary meaning marks registrable and grants 
them all the rights accorded trade-marks previously protected under the 
Act of 1905 does not embody an entirely new principle. Nor is the idea 
that use for a period of years shall be prima facie evidence that the 
mark distinguishes the applicant's goods an entirely new idea. The Act 
of 1905 permitted the registration of secondary meaning marks if they 

2r> The right of a concern to choose its own customers has been recognized by the 
courts in many cases. In this instance, those concerns which furnish testing service are 
forced to certify the goods and services of other conerns which demand certification and 
are willing to maintain certain standards and conditions. Since certification must rest 
upon product testing, this is tantamount to customer selection. Whether this provision 
would be upheld by the courts, if challenged, is open to question. 


had been in continuous use during the ten-year period of 1895-1905. 
The courts have said in the past that use during this period created the 
presumption that the mark identified the applicant's goods. The Lan- 
ham Act merely brings this principle up to date by making continuous 
use for any five-year period prior to registration prima facie evidence 
that the mark identifies the applicant's goods. 

Almost all interested parties have long agreed that secondary- 
meaning marks deserve the same protection afforded other marks. Such 
marks as Elgin, Waltham, etc., have become so widely known that, if 
there is a secondary meaning, it may be the cities concerned that hold 
the secondary positions. Consumers depend upon such marks, and 
manufacturers have staked their fortunes on them. To deny them any 
benefits which registration might confer would be unjust both to the 
producer and to the consumer. 

Cancellation. — There are many grounds on which the registration 
of a mark may be challenged and, perhaps, canceled. One writer has 
listed twenty-one of them, sixteen of which apply to trade-marks as 
such and the other five to certification or collective marks. 26 Some of 
these — in fact, all applying to service and certification marks — are, 
of necessity, new grounds for cancellation. Those applying particu- 
larly to certification marks have been discussed at length previously. 
The ground for cancellation which calls for particular comment is that 
the mark has become the "common descriptive name" of an article or 
substance on which the patent has expired. 27 Comment will likewise 
be made on the fact that the Federal Trade Commission has been given 
the right to apply for cancellation of any mark registered on the Prin- 
cipal Register. 

The exception in reference to a common descriptive name was 
added only a few days before the Act was finally passed. Under com- 
mon law, trade-mark rights have frequently been lost because a product 

26 Percy E. Williamson, "Trade-Marks Registered under the Lanham Act Are Not 
'Incontestable,'" Printers' Ink, Vol. CCXIX, Part I, No. 10 (June 6, 1947), p. 68, and 
Part II, No. 11 (June 13, 1947) p. AG. 

27 Note the words "on which the patent has expired." These are used in Section 14 
(c) of the Act. Later, in Section 15 (4), likewise concerned with the transition of a 
mark to a commonly descriptive name but in reference to incontestability, the words 
"patented or otherwise" are used. The reason for this difference in language in the two 
sections seems inexplicable on any reasonable bases. Apparently, neither the Federal 
Trade Commission nor any private party can apply for cancellation of a registration on 
the basis that a mark has become commonly descriptive of an article unless the article 
has been patented and the patent has expired. The validity of the registration of an 
unpatented article would not be subject to attack on this basis. The right of incontest- 
ability, in contrast, could be attacked on this same basis whether or not an article had 
been patented. 


name had become generally accepted in everyday language. For in- 
stance, the names "Linoleum" for a floor covering, "Shredded Wheat" 
for a breakfast cereal, "Aspirin" for a drug, and "Cellophane" for a 
wrapping material have all lost their trade-mark significance. 28 In each 
instance the decision as to trade-mark rights followed prolonged and 
bitterly contested litigation in the courts. Therefore, the Lanham Act 
recognized the possibility of a loss of trade-mark rights under the 
common law through the provision (sec. 14c) under consideration. 
Still, the fact that this provision is incorporated into the Lanham Act 
has caused considerable apprehension on the part of the business com- 

At least, the danger of a name becoming generic continues under 
the new law, and business concerns must take all possible precautionary 
measures against attack on this basis. Some of these measures are: to 
devise alternative names for the product as such and the company's 
brand, initially; always to use the company's name with the mark — for 
instance, Owens-Corning Fiberglas instead of just Fiberglas; to control 
the use of the mark by licensees; to take prompt action against those 
who use the company's mark in a generic sense; and other measures of 
like character. It will also help to stress, in all advertising and other 
promotional material, that the mark designates, not a product class, but 
the company's particular product. The Commissioner of Patents said: 

Time does not permit any extended discussion of the intricate legal problems 
concerning the possible transition of a trade-mark into a generic term. Suffice 
it to say here that the old Trade-Mark Act contained no similar provision, that 
our courts in recent years have not distinguished in this regard between patented 
and unpatented articles, and that the new law is capable of a construction that 
such a transition into a common descriptive term may be found even if it can- 
not be attributed to a course of conduct on the part of the registrant himself. 
These possibilities should, in my opinion, be considered a warning to all trade- 
mark owners to use extreme vigilance in protecting their marks against any 
generic use by others or — as not infrequently occurs through inadvertence — by 
themselves. 29 

It may be difficult to determine, in any particular case, whether a 
trade-mark owner intentionally abandoned his right to a mark or failed 
to protect the mark from becoming a generic name through negligence. 
Furthermore, there may be some doubt as to whether the loss of rights 

28 See Kellogg Co. v. National Biscuit Co.. 305 U.S. Ill (1958) ;Baver Co., Inc. v. 
United Drug Co., 272 Fed. 505 (D.C. S.D. N.Y., 1921); DuPont Cellophane Co. v. 
Waxed Products Co., 85 F. (2d) 75 (CCA. 2d, 1936). 

29 Ooms, op. cit., p. 159. 


is threatened because of negligence or despite the owner's best efforts 
to prevent his mark from becoming the generic name of a product. If 
the transition into a common descriptive name cannot be prevented by 
the owner of a mark, rights of considerable value will be lost. In fact, 
he is in a dilemma, for to the extent that he promotes and popularizes 
his mark it is likely to become generic. When a manufacturer intro- 
duces a product into a field which has been well cultivated by others, 
this danger does not exist. The name of the product as such has prob- 
ably been established. However, when he introduces an entirely new 
product, such as Fiberglas or Koroseal, the danger is ever present. 
Then the name which the manufacturer places on his product and uses 
as his mark is likely to become the 'common descriptive name" by 
which jt is known to the public. Under these circumstances it is par- 
ticularly necessary to take all possible precautions against such an 
eventuality. Surely the danger of a name becoming generic has not 
been lessened by the Lanham Act, other than through the advance 
notice which it gives to business executives. 

The consequences of the provision that the Federal Trade Commis- 
sion may apply for the cancellation of a mark registered on the Prin- 
cipal Register established by the Act are difficult to foresee. This is 
something new in trade-mark legislation which provides a new and 
powerful potential adversary* to business concerns which are attempt- 
ing to retain exclusive rights in a mark. The grounds on which the 
Commission may apply for cancellation are limited to those enumerated 
in the Act, but they cover a wide field. The validity of some of these 
grounds — such, for instance, as fraudulent procurement of a mark 
or violation of express provisions of the statute — cannot seriously be 
questioned. Action on these and other common grounds is likely to be 
taken by the Patent Office. The Commission is more likely to concern 
itself with cases in which the grounds for cancellation used are transi- 
tion to a common descriptive name or abandonment. On the first basis 
the trade-mark owner appears to be more vulnerable than formerly. 
Before the Lanham Act, an owner might have lost exclusive rights to 
a mark if another concern used the mark and the owner was unable to 
uphold his exclusive rights in court because his mark had become a 
generic name. Still the situation was one in which two concerns in 
competition tested their rights in the courts if other measures failed to 
bring voluntary agreement, perhaps through sale of rights or merger. 
Now the situation in which the owner may find himself is entirely 
different. The Federal Trade Commission may go out of its way to find 


situations in which brand names used in marks have assumed some 
measure of common use in everyday language as the name of an 
article. This may, conceivably, become a charge commonly made in 
anti-monopoly actions by the Commission. . In any event, business 
executives are fearful that marks will be challenged frequently by the 
Commission, and they feel that the scales are weighted in its favor. 
"What is hoped for is that both the Patent Office and the Federal Trade 
Commission will recognize that the exercise of the power to cancel 
is a serious public function which must be administered with full con- 
sideration both for the public interest and for the interest of the owner 
of the mark." 30 This statement would likewise express the hope of most 
business executives. 

Incontestability. — Businessmen have . long desired incontestable 
rights in trade-marks and the assurance which such rights would give. 
However, as rights were based upon priority in use, marks were always 
contestable on that basis by other parties until the passage of the 
Lanham Act. Under this Act, after five years of use subesequent to 
registration of a mark, an affidavit to that effect can be filed and in- 
contestibility can then be achieved if four other conditions are also 
met. These conditions were listed previously. 81 Note, however, that 
incontestability is gained only on the basis of priority of use. The term 
"incontestability" is really a misnomer in this instance because one 
assumes that it has a broad coverage, whereas, in fact, it does not. The 
dictionary meaning of the word cannot be applied in the manner 
reasonably to be expected. A mark which has gained incontestability 
can be challenged on numerous bases. A mark is not actually incon- 
testable other than in the sense that another party cannot, even by 
fully substantiating his claim of priority of use, successfully challenge 
the right of the registrant to use the mark. The right of exclusive use 
can be challenged, however. As noted previously, another party may 
be able to secure the rights of concurrent use and registration but only 
under certain limitations as to area of use or product. Under these 
circumstances, incontestability becomes an incontestable right on the 
basis of statutory law to concurrent use and registration. 

The grounds on which the right of incontestability can be challenged 
are those previously considered for cancellation of registration, but 
with one significant addition. It is "that the mark has been or is being 

Ibid., p. 159. 
See p. 160. 


used to violate the antitrust laws of the United States." This provision 
as given in Section 33£(7) has been severely criticized by business 
executives and the counselors who serve them, partly because it con- 
stitutes an additional hazard but also because of uncertainty as to the 
manner in which it will be interpreted. It is not clear whether an old 
violation can be cited in a defense by an infringer, thereby prejudicing 
the position of the plaintiff who has attained incontestability for his 
mark. The words "has been" in the provision surely establish this 
possibility, although the plaintiff's recent conduct in observance of 
the antitrust laws may have been exemplary. A retroactive proviso 
of this character possibly has some justification, but it introduces a 
factor into trade-mark litigation which is likely to provide aid and 
comfort to those who infringe legitimate rights and to delay proceed- 
ings without sufficient reason. 

Much depends upon the interpretation of the intent of the pro- 
vision. Perhaps the courts will hold that the owner of a mark which 
has achieved incontestability, as the plaintiff, will be denied relief and 
have his suit dismissed if the defendant succeeds in establishing "that 
the mark has been or is being used to violate the antitrust laws of the 
United States." Or, perhaps, the interpretation will be made that 
proof by the defendant of an antitrust violation will go no further 
than to remove the privilege of incontestability without deciding what 
the further effect of this defense will be. Under such an interpretation 
the establishment of an antitrust violation would not justify the dis- 
missal of an infringement suit. In time judicial interpretation will 
remove doubts such as these, but until then trade-mark owners are 
in a quandary. In the meantime, there may be some question as to the 
wisdom of seeking incontestability, for, once it has been achieved, 
antitrust-violation defense by the infringer is brought into play. It is 
not a ground likewise for seeking cancellation of registration. There- 
fore, a trade-mark owner may be more vulnerable than otherwise if his 
mark has achieved incontestability. 

It should not be inferred from the previous discussion that the 
provision for incontestability has no value to business concerns. There 
are many uncertainties involved which raise some doubt of its value, 
such as this antitrust violation defense. Moreover, the Act as passed 
did weaken the provisions on incontestability in the earlier drafts of 
the Act considerably. Nevertheless, incontestability will probably be- 
come a valuable consideration in many cases. At least, a concern cannot 
lose the right to use a mark on which incontestability has been achieved 


because another party used it in the first instance. Moreover, it is not 
likely that a mark will have to be shared with other concerns — that 
concurrent rights will be granted frequently. There will probably be 
fewer instances as time goes on in which concurrent use and registra- 
tion is granted — perhaps even fewer cases of infringement then 

Summary. — The revision of the statutory law on trade-marks started 
in the early twenties — about twenty-five years before the Lanham 
Act (through which the task was accomplished) went into effect. 
While many reasons might be adduced for the duration of this effort, 
the primary one was the inherent complexity involved in framing 
legislation which would adequately protect the legitimate rights of 
business entities as producers and distributors of products and would 
likewise protect consumers. There were many parties whose interests 
were directly affected by trade-mark legislation. Their interests were 
often conflicting, and their ideas differed as to what constituted effective 
protection. Any legislation, but particularly legislation of this char- 
acter, is always a compromise between various conflicting positions 
taken by interested parties. Therefore, no one is likely to be com- 
pletely satisfied with the Lanham Act, and additional criticism is to 
be expected. Still few writers to date have denied that substantial 
benefits are likely to be secured from the Act. In fact, the protection 
of trade-marks and other marks has been considerably enhanced with 
resultant benefit to the business community. 

Through the passage of the Lanham Act, trade-mark legislation is 
much more in step with the needs of business than it has been in the 
past. Much has been done to codify and clarify previous trade-mark 
law. Procedures which should be followed in the protection of trade- 
mark rights have been clarified. Prior to the Lanham Act, many of 
the decisions of the courts affecting trade-mark rights had not been 
recognized in statutory law — for instance, those concerned with the 
right of concurrent use, achieved through prior use of a mark in certain 
limited geographical or product areas or through transition of a mark 
to a common descriptive name. As many legal decisions of the past 
are now recognized in statutory law for the first time, decisions of the 
Patent Office of an administrative character are more likely to be in 
line with those of the courts. 

Substantively, the Act gives promise of providing numerous im- 
portant benefits. The permission for use of trade-marks by related 
companies without affecting registration gives expression in law to a 


prevalent and useful business practice. Registration of collective, 
service, and certification marks gives protection to marks which, in 
modern society, require protection as much as marks applied to goods. 
The registration of secondary-meaning marks overthrows an outmoded 
legal principle whose stringency has long handicapped business. As- 
signment of trade-marks has been made less difficult and under condi- 
tions which are more realistic. Progress toward incontestability and 
freedom from perpetual vulnerability has been made. Moreover, the 
trade-mark register and the new registers for other marks of the Patent 
Office should henceforth contain more of the marks used in business 
than formerly, and yet be relatively free of obsolete marks which are no 
longer in use. 

On the other hand, there are many doubts and uncertainties still 
remaining in reference to the maintenance of trade-mark rights. All 
difficulties have not been overcome, and some additional ones have been 
created, or so it now appears to businessmen. In particular, those pro- 
visions of the Act which permit the Federal Trade Commission to 
apply for the cancellation of a mark and permit lack of compliance 
with antitrust legislation, either past or present, as a defense which 
may be invoked by an infringer under incontestability, appear formid- 
able. Some of these doubts, fears, and uncertainties may be overcome 
shortly. Much depends on the manner in which various provisions of 
the Act are interpreted by the Patent Office and, particularly, by the 
courts. Much depends likewise upon whether the responsibilities placed 
by the Act upon the Patent Office and the Federal Trade Commission 
are exercised intelligently and with restraint; also with full considera- 
tion both for the public interest and for the interest of trade-mark 


Borden, Neil H. "Advertising Branded Parts to Consumers," Harvard Business 
Review, Vol. XXV, No. 1 (autumn 1946), pp. 129-44. 

Borden, Neil H. Determination of Confusion in Trade-Mark Conflict Cases, 
Vol. XXIII, No. 8. "Business Research Studies," No. 16. Boston: Harvard 
University, Graduate School of Business Administration, Bureau of Business 
Research, December, 1936. 

Borden, Neil H. "The New Trade-Mark Law," Harvard Business Review, Vol. 
XXV, No 3 (spring, 1947), pp. 289-305. 

Buckingham, A. O. "The Future for National Brands"; Norman S. Rabb, "The 
Future of Private Brands"; Neil H. Borden, "The Significance of the Battle 
of the Brands," in Proceedings of the Spring Conference of the American 
Marketing Association, Hotel Statler, Boston, Mass., May 16, 17, 1946. 


Callmann, . Rudolf . Trade-Marks and the Lanham Act. New York: Patent & 
Trade-Mark Institute, 1947. 

Cumming, James C. The $8,000,000,000 Textile Industry: Is It Ripe for Brand 
Name Promotion? Reprint of articles which appeared in Sales Manage- 
ment, beginning with the issue dated April 15, 1945, and ending March 
15, 1946. 

Digges, Isaac W. "The Lanham Trade-Mark Act," Printers' Ink, Vol. CCXVII, 
No. 9 (November 29, 1946), p. 30. 

Frey, Albert Wesley. Manufacturers' Product, Package, and Price Policies, chap, 
xiii. New York: Ronald Press Co., 1940. 

Handler and Peckett. "Trade-Mark and Trade Name — an Analysis and Syn- 
thesis," Columbia Law Review, Vol. XXX, pp. 168-201, 759-88. 

Hotchkiss, George Burton. An Outline of Advertising, chap. viii. New York: 
Macmillan Co, 1940. 

Kleppner, Otto. Advertising Procedure, chap. viii. 3d ed. New York: Prentice- 
Hall, Inc., 1946. 

Maynard and Beckman. Principles of Marketing, chap. xxxv. 4th ed. New 
York: Ronald Press Co., 1946. 

Ooms, Casper W. "The Lanham Act — Some Constructive Suggestions," a paper 
read before the Commerce and Industry Association of New York at 
New York City on July 9, 1947. 

Ooms, Casper W. United States Commissioner of Patents. "Good News for 
Brand Advertisers." Paper delivered before the annual meeting of the 
Association of National Advertisers at Atlantic City, New Jersey, September 
30, 1946. Washington: Department of Commerce. (Mimeographed.) 

Poffenberger, Albert T. Psychology in Advertising, chap. xxiv. 2d ed. New 
York: McGraw-Hill Book Co., 1932. 

Preparing for the Neiv Trade-Mark Law, Analysis 50. New York and Wash- 
ington: Research Institute of America, Inc., December, 1946. 

Public Law 489: An Act to Provide for the Registration and Protection of 
Trade-Marks Used in Commerce, To Carry Out the Provisions of Certain 
International Conventions, and for Other Purposes (Lanham Act; H.R. 
1654), U.S. Statutes 1946 (79th Cong., 2d sess.). Washington: US. Gov- 
ernment Printing Office ) . 

''Rules of Practice in Trade-Mark Cases," Federal Register, June 19, 1947 (Part 
100 of Title 37); also, Washington: U.S. Government Printing Office, 

Strong, Edward K., Psychological Aspects of Business, chap. xxi. New York: 
McGraw-Hill Book Co., Inc., 1938. 

Taylor, Malcolm D. "Prices of Branded Grocery Commodities during the De- 
pression," Harvard Business Review, Vol. XII, No. 4 (July, 1934), pp. 

Teele, Stanley F., and Bursk, Edward C "Marketing Practices of Food Manufac- 
turers," Harvard Business Review, Vol XXII, No. 3 (spring, 1944), pp. 

Temporary National Economic Committee. Investigation of Concentration of 
Economic Power: Price Behavior and Business Policy, chap, iii, in particular 


pp. 72-90. "Temporary National Economic Committee Monographs," No. 

1. Washington: U.S. Government Printing Office, 1940. 
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Anderson Co., 1946. 
The New Trade Mark Act. New York: Lawyer's Advisory Committee, United 

States Trade-Mark Association, 1947. 
Williamson, Percy E. "Trade-Marks Registered under the Lanham Act Are Not 

'Incontestable,' " Printers' Ink," Vol. CCXIX, Part I, No. 10 (June 6, 1947), 

p. 68 and Part II, No. 11 (June 13, 1947), p. 46. 

Chapter VI 


T)ACKAGING is closely related to branding and labeling. In fact, 
-■" they form a triumvirate with which management must deal almost 
concurrently if an effective product is to be placed on the market in a 
reasonable length of time after it is developed and tested. Packaging is 
a subject which has highly technical aspects, for instance, the question 
of moisture control. It can be approached from the technical side or 
its managerial and policy aspects can be stressed. Relatively little atten- 
tion will be given in this chapter to technical considerations other than 
to indicate their importance. Rather, attention will be focused on the 
objectives of packaging, on organization and procedures, and on 
broader questions of policy. 

Basic Objectives in Packaging 

The extent to which additional products have been packaged in 
recent years is quite evident through observation in any grocery, drug, 
or variety store. Many products which people thought could not be 
packaged successfully, either because of their physical characteristics 
or because inspection prior to purchase was habitual, are now being sold 
in packaged form. Transparent materials and more effective product 
standardization have helped greatly as they have either permitted in- 
spection or have made it less necessary. Such products as coal and 
lumber are even packaged to a limited extent. It now appears that few 
products frequently purchased by consumers completely defy packag- 
ing. Furthermore, this packaging can usually be done in a manner 
which will accentuate purchases. 

There are many reasons for this increase in the use of packages by 
manufacturers and processors. Foremost among them is the fact that 
packaging provides a means for identification of a particular manufac- 
turer's merchandise which might otherwise appear identical to that of 
other manufacturers. It likewise furnishes a vehicle for brand names, 
trade-marks, and labels. A manufacturer's product might not appear 
sufficiently distinctive without packaging so that it could be recognized 
easily by potential purchasers. Packaging can be used to create the 
semblance of distinctiveness in a product in which little distinctiveness 



actually exists. It thus provides an opportunity for demand-creation 
efforts through which consumers' purchases can be directly influenced. 

Objectives in packaging can be well illustrated by the action of the 
oil companies in placing automotive lubricating oil in tin cans. This 
was started on a large scale in 1933 although some companies had ex- 
perimented wtih cans at least a decade earlier. The introduction of the 
can, filled and sealed at the refinery, did achieve identification and thus 
prevent substitution of inferior oil. This was of the greatest importance, 
as it was aimed at the weak link in the whole distribution setup. The 
refiner presumably has a distinctive product, since there are real differ- 
ences in oils, not only simulated ones. Suppose that a refiner advertised 
extensively to consumers and was able to secure a goodly measure of 
preference for his oils. But when the consumer, who had been influ- 
enced by the advertising, purchased oil, he had no way of ascertaining 
whether he received that particular refiner's product. There might be 
substitution of an inferior oil, for the consumer had to rely on the 
carefulness and honesty of those who served him. If there was substi- 
tution, the refiner would suffer in two ways. He would not realize upon 
his advertising effort, and, furthermore, the consumer might discover 
that the oil he received was of poor quality and, because he would not 
be aware that substitution had taken place, the resultant ill will would 
attach itself to the refiner's product which he thought he had received. 
Thus a good case can be made for the tinning of oil from the substitu- 
tion angle. Moreover, it prevents wastage and adulteration, makes pos- 
sible display, reduces dealers' inventories, and speeds up service at 
service stations. 

Despite these reasons which might have brought action on the part 
of the oil companies, oil was not packaged extensively until 1935 and 
might not have been then if it had not been for systematic prodding by 
the can companies through an extensive promotional campaign. At that 
time the cost of tinning oil in quart cans and of placing them in service 
stations was between three and four cents each, or nearly four times the 
cost of handling oil in bulk. Thus it was a considerably more costly 
method, and in the great majority of instances the consumer was getting 
the same product, although admittedly there was some chance of substi- 
tution and of adulteration through carelessness on the part of service- 
station attendants. If the additional cost could not be passed on to the 
consumer or to the retailer through decreased margins, the manufacturer 
would lose rather than profit through the packaging of oils. Perhaps 
the dealer could be forced to take lower margins, for his costs were 


decreased while those of the petroleum companies were increased. 
Packaging in this instance evidently brought about a redistribtuion of 
the costs assumed by the manufacturer, jobber, and retailer, and some 
adjustment had to be made in margins in order to allow for this fact. 
Whether the extra cost could be passed on to the final consumer would 
depend upon the importance of the advantages to him of securing 
oil in cans instead of in bulk, when expressed in monetary terms. In 
many locations the consumer is now charged an additional two cents 
per quart for oil in cans. This probably represents approximately the 
net additional costs of marketing in such containers. Still one large 
jobber reports that bulk oil is always furnished in the stations which 
he controls unless the consumer specifically requests oil in cans. The 
reasons given for this policy are that the consumer thereby gets a better 
value, and both the dealer and the company make more profit. 

This suggests that there has been little if any profit advantage to the 
refiners in packaging oil. But there may have been an advantage to 
some and not to others through the redivision of existing demand. 
Through packaging, any one company may get business at the expense 
of competitors, and, because of increased volume and hence lower unit 
overhead costs, incur sufficiently low costs to increase net profits. This 
may have been the expectation and the actual experience of the Sinclair 
and Shell companies, the first of the large concerns to feature oil in 
cans. The advantage attained by these two companies may have been 
the reason why others followed suit and likewise offered oil in cans to 
consumers. Because of this action the advantage gained by being the 
first to act may have been only a temporary one. The former division 
of demand between the various companies may have reasserted itself. 
Manifestly, a whole industry, if it assumes additional costs through 
packaging, cannot profit by doing so unless these costs are recovered in 
the stream of revenue through increased prices and with something in 
addition, or unless other costs are decreased more than proportionately 
or a combination of increased price and reduced costs is greater than 
packaging costs. Other costs are not likely to be reduced sufficiently 
unless total demand for a product is increased. Then the whole industry 
may be in the fortunate position of a single concern which was able to 
get a redivision of existing demand in its favor. Furthermore, if total 
demand can be increased, it is possible for one or more concerns to 
increase their volume of business without affecting others and thus 
without provoking retaliatory action. Perhaps an additional total de- 
mand was a reasonable expectation when beer was put in cans, when 


cheesecloth was packaged in varying lengths, or when Scotch cellulose 
tape was placed in a handy gadget which made use easy. In each in- 
stance, the product was probably used for some purpose or on some 
occasions where it had not been used before. In the case of oil, however, 
there was no reason to believe that total demand would be increased 
by sale in cans rather than in bulk. If there was greater assurance of 
quality and less danger of substitution than when sold in bulk, there 
would be greater likelihood of a decrease rather than an increase in 

In summary, the expectations of a manufacturer when he originally 
packages a product and thus his objectives in so doing may be any one 
or a combination of the following: ( 1 ) an increased total demand; (2 ) 
a redivision of existing demand in his favor; (3 ) a redi vision of existing 
demand to regain a lost position — in other words, to meet competition; 
(4) a real consumer demand for product in packages rather than in 
bulk which will make possible a price increase more than sufficient to 
compensate for the costs of packaging; ( 5 ) reduced costs through easier 
handling, the prevention of wastage and spoilage, and so on, which will 
more than compensate for the costs of packaging; ( 6 ) a combination of 
increased price and reduced costs. 

Complexity of the Packaging Problem 

Economic Implications. — The complexity of the packaging prob- 
lem has been suggested by the foregoing discussion of the objectives 
which may possibly be attained when a company first packages a prod- 
uct previously sold in bulk. Whether these objectives or any one of them 
can be attained and in what measure is most difficult to predict. Inten- 
sive study must be given to many phases of the general problem prior 
to a decision, either affirmative or negative. First, it is necessary for 
company executives to see just as clearly as possible the. economic 
implications of packaging, i.e., how it will affect both the absolute and 
the relative positions of various interested parties in the market and how 
they will react to a change. Any major change in the manner in which 
a product is placed upon the market, such as the tinning of oil or the 
pre-packaging of fresh meats, affects many parties engaged in marketing 
activities. Second, there is the probable reaction of consumers to 
take into consideration. It is indeed a complex task to determine the 
advisability of a major change of this character. 

Some insight into the nature of the problems presented can be 
secured through a brief analysis of the situation now confronting the 


meat-packing companies in regard to the pre-packaging of fresh meats. 
It is not a new problem, for it has been under study for many years and 
the general problems of packaging are familiar to them. However, im- 
provements in packaging materials, technical advances in quick freez- 
ing, and the experience gained in the preparation and packaging of 
meats during the war have brought the question again to the fore, and 
it is being studied by many concerns. Evidently, the packers have avail- 
able a number of quick-frozen meat items now ready for sales testing or 
even for actual distribution at the opportune time. 1 Some quick-frozen 
cuts of beef are currently being sold in packaged form on an experi- 
mental basis, and other experiments are planned both by the meat 
packers and by the Bureau of Agricultural Economics of the Depart- 
ment of Agriculture. 2 

The complexity of the problem is largely an outgrowth of the fact 
that pre-packaging would make necessary a change in the purchasing 
habits of consumers. It would also affect in diverse ways many groups 
who are engaged in the preparation and distribution of meats. Among 
these are the packers, the butchers, the independent meat dealers, and 
the chain-store companies. Transportation agencies would undoubtedly 
be affected, and equipment manufacturers likewise. At present there 
are many unknowns in regard to the attitude which each of these 
parties would take toward the change. Most consumers, for instance, 
habitually inspect fresh meats prior to purchase. While meats can be 
pre-packaged in such a manner as to allow inspection, they would prob- 
ably be less clearly visible to the buyer than formerly; watching the 
cutting operation and directing the butcher would be eliminated; and 
other purchasing habits would be affected. Consumers might not react 
favorably. However, their reaction on balance might be favorable, as 
there would be certain advantages to them, for instance, greater cer- 
tainty of receiving specific qualities of meat, more exact weights, and 
less wastage. Prices would probably be somewhat higher than formerly, 
but the quality differential might provide an offset. 

Retailers of meat might react favorably or otherwise. Pre-pack- 
aging would entirely change the character of meat retailing, for there 
would be no preparation of the product within the retail unit. The 
stock of meats in the hands of retailers would probably be less than 
formerly. The retailer would need additional equipment, and some 

1 F. W. Specht, Pre-Packaging Meats (Chicago: Armour and Company, July 15, 

2 "Frozen Meat Future Dim," Business Week, March 29, 194?, p. 62. 


equipment now used would become obsolete. It is doubtful whether 
his over-all investment would be increased. This change might appre- 
ciably effect the competitive struggle between the independent dealer 
and the chain-store companies, and in unforeseen ways. To the extent 
that pre-packaging was carried forward the butcher would become an 
employee of the packer. Fewer butchers would probably be needed 
than formerly, since machine cutting would at least partially replace 
hand cutting and all operations would be more standardized. Inci- 
dentally, a change in labor affiliations or jurisdictional disputes would 
be in the offing, because the butchers' union is connected with the 
American Federation of Labor, whereas packing-house workers are 
affiliated with the Congress of Industrial Organization. The butchers 
might therefore resist pre-packaging through their union. 

The activities of the packing companies would be considerably ex- 
panded through pre-packaging. Many of the functions now performed 
by the retailer would be shifted to the packer, among them cutting, 
trimming, packaging, and weighing. Large numbers of specially 
trained workers would have to be added to the labor force. Capital 
investment would be substantially increased through the acquisition of 
new and specialized equipment for freezing, packaging, storage, and 
transportation. While it would be possible for a packer to foresee the 
changes in his own operations necessitated by pre-packaging, the feasi- 
bility of the move obviously depends in part upon the reaction of other 
parties and on what they might subsequently do if they felt that their 
interests had been jeopardized. 

The complexity of the packaging problem in this instance, the 
reasons for a cautious approach, as well as the need for product and 
market testing, should now be apparent. 3 If pre-packaging is econom- 
ical, that is, if a better product in a more acceptable, form can thus be 
provided for the consumer at no additional cost or at a reasonable price 
differential, it is likely in time to become the accepted form in which 
fresh meat is sold to consumers. At present there are still many un- 
knowns in the situation, and thus progress is likely to be slow. The 
packers will probably continue to engage in extensive product and 
market testing. If technical problems can be solved successfully and 

3 It would not be argued that the pre-packaging of fresh meats furnishes a typical 
example of packaging problems. There are few other products as important to consumers 
in purchasing. Moreover, the change would revolutionize meat retailing. In other situa- 
tions, however, the nature of the problem is markedly similar, even though a decision 
might be less difficult and far-reaching in its effect on the distribution of functions among 
business entities. 


if the market clearly demonstrates a preference for pre-packaged meats, 
steps will be taken to increase the quantity available. 

A Multi-variable Problem. — The difficulties involved in reference 
to packaging are not all of a general economic character, such as those 
just discussed. Even though a conclusion is reached that packaging is 
desirable, the difficulties of doing it satisfactorily may withhold action. 
There are many factors involved, and any one of them may provide a 
stumbling block to management. One of the large producers of quick- 
frozen fruits and vegetables recently stated in private conversation that 
the two factors which were withholding the mass production of frozen 
foods were the lack of satisfactory packaging materials for such products 
and the lack of effective packaging machinery. While a considerable 
volume of these products is now being sold on the market, in the opin- 
ion of this executive their packaging is not satisfactory and the packing 
of the product is altogether too costly. For these reasons, among others, 
the price is held at a level which limits the takings of the market. Evi- 
dently technical improvements are still needed in this field. 

Some of the technical problems involved are suggested by the 
following questionnaire which was used by one of the large packaging 
material producers to elicit information from prospective buyers: 

1. What is the product to be packaged? 

2. For what purpose is the package intended — single use, dual use, gift, 
novelty, etc.? 

3. What size package is being considered? (Submit sketches, if possible, 
or samples of previous packages. ) 

4. What essentials of design and dimensions cannot be changed? What 
variations are permissible? 

5. What colors are desired? Is it necessary that the package remain un- 
affected by exposure to sun or ultra violet light? 

6. Does the item to be packaged contain water? 

7. Give acids and concentration the package must resist. 

8. Give alkali and concentration the package must resist. 

9. What solvents must the package resist without bleeding or disinte- 

10. Give chemical composition of compounds or mixtures the package must 

11. What resistance to shock or rough usage is desired? 

12. What is maximum cost you can pay for package? 4 

While this list is not exhaustive, it does suggest the multiplicity of 
factors which must be taken into account in the preparation of pack- 
ages. The package designer must deal with quantitative factors in 

4 Form F-362 (New York: Bakelite Corporation). 


relation to the properties of the product to be packaged and the 
materials which may be selected for construction. Decisions must 
be made on size, shape, color, material, manner of construction, and 
other questions of design. Decisions must likewise be made on how 
the package will be opened and how it will be resealed. Possible vari- 
ations in each of these features abound, and thus the number of possible 
combinations is great. Furthermore, the factors themselves are not 
particularly stable, nor is it desirable that they should be if progress 
is to be made in the improvement of packages. New materials, such 
as transparent wrappings, plastics, foils of aluminum or other metals, 
and combinations of these materials, constitute new variables in a com- 
plicated picture. The recent war was responsible for the development 
of many new materials and processes, but it also withheld their avail- 
ability for immediate use. Changes in transportation bring forward 
new problems. Air freight makes weight reduction imperative but like- 
wise, for the present at least, reduces the likelihood of physical damage. 
Altitude becomes a factor in packaging for air transport, particularly if 
the product is a fluid and therefore expands with a decrease in air pres- 
sure. Therefore, packaging is not only a multivariable problem but one 
in which change in the variables is frequent. It is a complicated prob- 
lem and one which requires the services of many people with diverse 
training and ability to aid in its solution. More attention will be given 
to the physical features of packages and to organization for packaging 
work later in this chapter. 

Conflict of Utilitarian and Artistic Objectives. — Another reason for 
complexity in the packaging problem is that, in most cases, there are 
both utilitarian and artistic objectives in mind, and these are frequently 
in conflict. Packages have a dual role to play. They must be designed 
to contain merchandise but, in most instances, they must also have 
promotional value and thereby help in the selling process. In order to 
attain promotional objectives through artistic appeal only, a package 
might be made of unusual shape from certain particularly attractive ma- 
terials. Utilitarian objectives, such as ease in filling, effective and low-cost 
packing, maintenance of the quality of the merchandise, low storage 
and transportation costs, and the like, might strongly suggest a more 
orthodox shape and different materials. So in the designing of packages 
there is always the problem of securing the best combination of attri- 
butes in view of both utilitarian and promotional objectives. There 
must be some yielding on both sides, for under such circumstances 
compromise is to be expected. 


Timing of Package Changes 

The tempo of package change has been stepped up materially by 
the recent emphasis on their promotional value. No longer is packag- 
ing thought of as merely a matter of production or of merchandise 
preservation. Packages would be changed less frequently in order to 
achieve lower production costs or to protect quality more fully. But 
promotion thrives on change. Something new and interesting which 
will attract consumers and enthuse salesmen and distributors may have 
an appreciable effect on sales volume. A better combination of colors, 
which improve display value; an improved closure; or a different shape, 
which permits easier access to contents may have considerable promo- 
tional value if the change is skilfully handled for promotional effect. 

Anyone who now argues for retaining a package which has been in 
use for many years is clearly on the defensive. It is not likely that such 
a package meets the needs of the present market or that it is reasonably 
effective in competition. Changes have been taking place too rapidly, 
particularly in the field of packaging materials, to allow for very infre- 
quent change. New visual wrappings, plastics, pliofilm, and other new 
materials if used by competitors can quickly make obsolete, or at least 
inferior, any given manufacturer's packages. 

Someone has said that a package should be changed whenever it is 
not the best in its field or equal to the best of other producers. Perhaps 
this appears to be an overstatement, but a manufacturer should not be 
hidebound about package changes. He may hesitate because of the cost 
involved and because he fears the recognition value of the old package 
will be lost. Of course, there is bound to be some confusion when the 
change is made, but few sales will be lost if consumers are properly 
informed through advertising and displays in retail outlets. An answer 
by Willard F. Deveneau to a question from the floor at a meeting of 
the American Management Association is significant on this point. 
He said: 

Many a manufacturer has told me, "We can't afford to change our package, 
it's too well known." There may be (I say it advisedly) occasions when that is 
true, but they are mighty, mighty few. 

If your change is a real and worthwhile one, and one you can justify on the 
basis that it will improve the acceptability of the product, make the change in 
package design in one step. But don't neglect to dramatize and merchandise the 
reasons for and advantages to be gained by the change! 

Some of the most interesting sessions I have attended have been meetings 
with manufacturers' salesmen, in which I give them every opportunity to state 


any objections they may have to a change in the design of an old package. If 
their thinking is guided and advantages of the new design are explained, before 
the session is over they will have been sold on it, and will go out and use it as 
an added and effective selling tool. 

But, again, all rules were meant to be broken, and there may be exceptions. 5 

There appears to be general agreement on this point. A company's 
name should help to provide tor recognition. Furthermore, if the con- 
sumer really has preference for a product, it is not likely that purchase 
will be withheld because the old familiar package is not in sight. A 
question to a salesperson will obviate the difficulty quickly. These possi- 
bilities, together with the promotional activities which accornpany the 
change, should give ample assurance that few if any sales will be lost be- 
cause of confusion or a lack of recognition. The question of cost as a de- 
terrent to package change is not so easily disposed of. The cost of pack- 
aging is admittedly substantial, but there may be savings in costs as well 
as promotional advantages which serve as a counterbalance and perhaps 
leave something by way of net advantage. 

Objectives in Repackaging 

A company's objectives in repackaging a product are basically the 
same as for packaging initially. By such action company executives 
hope to affect the course of demand or to improve competitive position 
through cost reduction. The latter may or may not affect demand, 
depending upon whether cost reductions are reflected in price decreases 
or are allowed directly to augment profits. Aside from possible price 
reductions, demand may be affected through a promotional advantage 
secured through repackaging. This, in turn, may be attained through 
improving the package from an. artistic or a utilitarian point of view. 
Improvements of both sorts may be made by the same repackaging 
effort, but more frequently they appear to be in conflict. Whether the 
company expects to achieve a more acceptable package from either one 
or both angles, it is hoped that the change will attract new customers, 
retain the patronage of old customers, and arouse greater interest in the 
product on the part of salesmen, wholesalers, and retailers. 6 

5 Willard F. Deveneau, Package Design Trends and Standards ("Packaging Series," 
No. 19 [New York: American Management Association, 1946]), p. 21. 

6 Alderson and Aiken classify the reasons for package changes under three headings, 
namely, to take advantage of technical developments, to adjust the package to new knowl- 
edge of consumer reactions, to capitalize change itself as a merchandising expedient (see 
Wroe Alderson and B. B. Aiken, Merchandising Requirements of the Drug Store Package 
["Domestic Commerce Series," No. 73 (Washington: U.S. Government Printing Office, 
1932)], p. 3). 


Promotional Advantage through Greater Artistic Appeals. — When 
through a package change greater artistic appeal is achieved, a package 
attracts more attention to itself in retail outlets. Packaging is thus a 
competitive feature in attracting customers while in retail outlets. Then 
a package may arouse a desire to purchase through its shape, coloring, 
pictorial illustrations, persuasive copy, or the visibility of merchandise 
which it affords. 7 For some products the package virtually sells the 
product. Perfume and other cosmetic manufacturers feature packages 
because of the effect which they may have in influencing the customer. 
In the case of perfumes, the package is, in part, a product independent 
of the merchandise which it contains, for it appears as an artistic object 
on a lady's dressing table. Whether the package or the product is upper- 
most in the consumers' mind when purchasing may even be in question. 
For other products the package is of less importance, but, if it is out- 
standing in its artistic qualities and inspires impulse purchasing, trial 
use of a product is achieved. The battle of promotion is then more than 
half-won. Provided that the product itself has real merit and is superior 
to the one habitually used, trial use may result in habitual use. Thus 
the manufacturer has secured a satisfied and relatively permanent 

The package now has greater responsibility in selling than formerly. 
This is because of the increased importance of self-service stores. 8 In 
such stores, packages compete directly without interference through the 
comments of retail salespeople. If packages are attractive, they are more 
likely to secure effective display. Retailers are more willing to arrange 
displays and to use the display materials furnished by the manufacturer. 
Something new, different, and of real artistic merit helps to make retail 
outlets more attractive to consumers, and thus the co-operation of deal- 
ers is more likely. Retailers may likewise benefit directly through in- 
creased sales volume. In a series of experimental studies carried on in 
retail outlets, E. I. duPont de Nemours and Company found that toilet 
paper, bottled food products, link sausage, and baked goods sold in 

7 The possible effect of greater visibility of merchandise as a promotional weapon is 
suggested in an advertisement of Owens-Illinois Glass Company in Collier's of March 22, 
1947 (inside front cover). The copy in the advertisement, in part, is as follows: "What 
5 facts about this fruit does one glance tell you? Well, right away I see what the fruits 

are And I see how it's cut I see the color of the fruit, too And I 

see how much juice I'm getting. Even how many servings I will have out of a jar 

And saves work, too! I refrigerate what we don't use right in the jar — saves washing 
extra storage dishes." The product advertised was the Company's Duraglas containers. 

8 See articles in The Package as a Selling Tool ("Packaging Series," No. 19 [New 
York: American Management Association, 1946]). 


appreciably larger quantities when wrapped in cellophane. 9 There was 
evidence likewise that consumers would pay higher prices for products 
so packaged and that relatively unknown producers could compete with 
reasonable success with their better-known rivals through more attrac- 
tive packaging. 

Promotional Advantage through Utilitarian Appeals. — When a 
package change is made which will increase the utility that the con- 
sumer may receive from a product, a very tangible promotional advan- 
tage is secured. Furthermore, there is no better reason for a package 
change than this, for it satisfies broad economic and social objectives. 
Change as a merchandising expedient or even change to improve the 
artistic qualities of a package might be frowned upon by consumer 
groups, for no additional utility is given thereby, unless aesthetic enjoy- 
ment can be considered as such. But when, through package change, 
the quality of a product is preserved for longer periods, there can be 
little question in regard to the benefits received by consumers. Under 
such circumstances it cannot be effectively argued that economic re- 
sources are being wasted by businessmen through actions which may 
change competitive standing but which do not directly benefit con- 
sumers. Some groups are not impressed by the argument that packaging 
is a competitive weapon — one among many such weapons; that the 
maintenance of competition is itself of social advantage even though no 
direct benefit to consumers is immediately discernible; and, therefore, 
that its use for promotional purposes can be justified. This may consti- 
tute sufficient justification in the minds of some people, but surely the 
defense is in a stronger position if direct consumer benefits can be 
pointed to after the exercise of competitive weapons, as in the case 
of repackaging, to achieve additional product protection. 

Numerous ways have been discovered for increasing the utility 
given by packaged products. The use of new materials which delay 
or prevent deterioration has been mentioned. Moisture-proof cellulose 
wrappings are a case in point. Improved closures have prevented waste 
and maintained quality during the period of use. For facial cream, 
shallow jars have been adopted with sufficiently wide openings to per- 
mit the user to get all the product from the jar without difficulty. 
Changes have frequently been made in packages in order to allow for 
easier stocking in the pantry or refrigerator. This is one of the advan- 
tages claimed for the paraffin-coated paper container for milk and for 

9 See Michigan Business Cases ("Market Analysis Series," Nos. 7 and 8 [Ann Arbor: 
Bureau of Business Research, University of Michigan, 1935] ) . 


the "square" milk bottle which are being used to an increasing extent. 
It was claimed in a New York newspaper advertisement of Sheffield 
Farms that a two-quart container takes no more room in a refrigerator 
than a one-quart glass bottle. 10 It was also claimed that purchase in 
two-quart paper containers saves 10 per cent on the milk bill, that the 
sealed-tab lid opens easily and closes tightly, that milk pours conveni- 
ently without dripping, and that milk is mixed with cream as you pour. 
Disutility is lessened because washing and returning of the container 
are no longer necessary. Surely, these are tangible advantages of a 
utilitarian nature, but in all probability there are some disadvantages 

Utility may also be increased by a change to dual-use containers. 
These, in effect, constitute a premium. If the cost of the product to the 
consumer is not substantially more when such a container is substituted 
for one with a single use, a better value is obtained. If, however, the 
cost is considerably more, the additional price necessarily charged may 
be a handicap to sales. If dual-use containers are to furnish a positive 
promotional advantage, care must be exercised to avoid giving the 
impression that the cost of the container has added greatly to the cost 
of the product. In other words, the consumer must be made to feel 
that he is getting something for nothing. Containers of this sort have 
been used much for gifts and novelty items — items of infrequent pur- 
chase and relatively high value, such, for instance, as jewelry, razors, 
cosmetics, and high-priced cigars and candy. Whenever the value of 
the container is a small part of the value of the finished product and the 
form in which the product reaches the consumer means much, these 
containers may be used effectively. 

Finally, a consumer may get additional utility from a product by 
being allowed to purchase the quantity which he finds most convenient, 
that is, if the range of sizes is a reasonable one in view of consumer 
needs and desires. Whether the range of sizes and other package char- 
acteristics are acceptable to consumers should be determined through 
market research. Certain consumers may use much of a product. More- 
over, they may have become aware of the savings available through 
purchase in "jumbo" packages and thus wish to purchase such packages. 
Lately there has been much emphasis on purchase in larger packages of 
milk, fruit and vegetable juices, cooked cereals, and certain drug prod- 
ucts. 11 Other consumers may use a product in small amounts and 

10 New York Post, November 9, 1939, p. 11. 

11 See Will Alexander, "Jumbo Packages Step Up Volume and Cut Distribution 
Costs," Advertising & Selling, Vol. XXXIII, No. 5, (April, 1940) p. 30. 


infrequently. For them purchase in large packages might result in 
inconvenience, deterioration in quality, and wastage. Repackaging a 
line in order to make adjustments in size in view of known consumer 
reactions should add to utility and improve competitive position. 

Promotional Advantage through Family Resemblance. — For one 
reason or another the various packages of a particular concern may have 
little if any resemblance. Responsibility for packaging may have been 
dispersed among different departments in large concerns, or executives 
of an earlier day may have thought that each package should be highly 
distinctive. Mergers have often brought together various products of 
like general character but with quite different package characteristics. 
This would be expected, as the merged companies were probably in 
competition previously. There may come a time, however, when it is 
considered advisable to repackage a line of products in order to draw 
them more closely together so that they constitute a family group. 
Similarity in package form, in labels, or in use of the company name 
will furnish the necessary association. Each product can then help to 
sell the others through a carry-over of good will from one product to 
another. New products may have a more favorable reception in the 
market through this association. Recognition of the source of the mer- 
chandise is also more likely. 

Whether close association is desirable depends very largely on 
whether the products are alike in form or associated in use. Even in the 
food line we should not expect the same sort of packaging for different 
product types, such as breakfast cereals, condiments, and beverages. 
The products themselves are too markedly different in their needs for 
packaging. If the products are of like character, for instance, all break- 
fast cereals, like packaging will probably be advisable from both the 
technical and the promotional angles. A recent action of General 
Foods Corporation furnishes a case in point. 12 Evidently, General 
Foods wished to associate its Post cereal products more fully through 
packages. These products are Grape-Nuts, Corn-Toasties, Grape-Nuts 
Wheat-Meal, Grape-Nuts Flakes, Raisin Bran and 40% Bran Flakes. 
The packages for these products were dissimilar, and General Foods 
evidently thought that greater similarity would have a favorable effect 
on sales volume through a transfer of good will from one to another 
and perhaps through inducing more effective display in retail outlets. 
Therefore, similar packages were created — the same color scheme (red, 

12 "About Face! General Foods Introduces the 'Changeover' Package for the. Post 

Cereal Family New Design Front, Old on the Back, during an Introductory Period," 

Modern Packaging, YoL XIX, No. 6 (February, 1946) p. 95. 


white, and blue), the same shape, the same design, and the same style 
of wording. In order to assure identification during the transitional 
period only one side of the package was changed initially, the other 
side remaining constant. Later the departure from the old packages was 
completed. Considerable publicity was given to the change, and clev- 
erly designed materials were prepared to inform both the trade and 
consumers that a change was taking place. 13 

In the instance just mentioned the products were of similar char- 
acter and for similar use. Therefore, association through packages ap- 
peared advisable. If there is too much association, however, confusion 
may result, and the purchaser may obtain an unwanted product. A nice 
balance is needed between sufficient similarity for promotional purposes 
and too great similarity in package design. Apparently the trend is 
toward breaking down a complete line into natural classifications and 
giving each one its own distinctive package design and color scheme. 
Family resemblance throughout a line is still maintained through the 
use of the manufacturer's name or trade-mark as a distinguishing char- 
acteristic on all products in the line. 

• Extension of the Market. — Changes in packages which make them 
more durable and thus able to stand longer haulage and more abuse 
during shipment may extend the market for an individual concern or 
lessen the need for packaging at intermediate points. Reduction in the 
weight of a package for a relatively low-value product may have like 
effect, as the costs of transportation may be the limiting factor to market 
extension. Changes in packages which reduce perishability of merchan- 
dise may have an appreciable effect on the extension of a market. Con- 
tainers so costly in relation to the value of the product itself that they 
must be repossessed by the manufacturer and used many times place a 
dual transportation load upon the product. Costs must be assumed not 
only for the initial transportation of the product to the point of con- 
sumption but also for the return of the containers. A lighter container 
which can be disposed of after it has fulfilled its purpose makes it 

13 General Foods was particularly cognizant of the need for dramatizing the change in 
packages, thereby facilitating the transition from the old package to the new. Display 
materials were prepared for use in retail outlets. For instance, a die-cut folder was pro- 
vided, designed in the form of folded paper cutouts. It opened up to show six little sisters 
"with troubled faces" dressed in the old packages. Under these pictures the copy read, 
"Six little sisters all in a row. But are they related? No one would know." On the other 
side were the sisters dressed in the new packages with the copy "The same six sisters now 
they can boast; we're all dressed alike and all named Post." Promotional materials such 
as this are very effective for acquainting consumers of a change in packages, thereby over- 
coming the possible disadvantage of abandoning a long-established identity through 


possible for a manufacturer to sell further afield because he is not 
competitively burdened by excessive transportation costs. The best 
illustration of this possible extension of the market through a change in 
packaging is furnished by the beer industry. There is good reason for 
believing that there has been a realignment in the beer industry from 
the point of view of territorial coverage of particular concerns since 
beer has been packaged in cans as well as in bottles and barrels. Pack- 
aging has probably lessened the advantage enjoyed by producers in the 
area of their location. As transportation costs become less significant as 
a determinant of the supply source, other factors such as efficiency of 
production, decreasing cost through greater volume, and the distinctive 
characteristics of a particular manufacturer's product, become more 
significant. They may lead to a shift in patronage either through price 
concessions or through greater preference for the product itself. 

Possibilities of Cost Reduction. — More often than otherwise cost 
reduction is a secondary, rather than a primary, objective in repack- 
aging. The primary objective may be of a promotional character or to 
achieve certain benefits through simplification of a line. A company 
may have found that the range of sizes in which its products were of- 
fered was not being used and that there was insufficient demand for 
some sizes to justify continuance. 14 Thus standardization of sizes and 
perhaps of materials may be decided upon with the expectation of 
savings. On the other hand, a change in packages may be made for 
promotional reasons, but, in the change, cost-reduction opportunities 
present themselves through which a reduction of substantial propor- 

14 The simplification of packages by Carson Pirie Scott and Company, of Chicago, 
Illinois, furnishes an excellent example. "An analysis of our problem in our women's and 
children's underwear section showed that we were shipping these lines to our trade under 
six different brand names, involving six different designs and color combinations in 
packaging, and 61 different sizes of shelf boxes. Further research revealed that only two 
of these brands, Mandalay and Classic, had consumer acceptance; the others were just 
names so far as the trade and public were concerned. Hence we discarded four of the 
brand names. Next we found that by refolding the merchandise and changing the quanti- 
ties contained in these boxes to conform with retailers' ideas, we could eliminate 58 of 
the 61 sizes, doing the job in three sizes and manufacturing these boxes in uniform length 
and width, with depth the only differential. The largest box was two inches deep, the 

medium-sized box one and one-half inches, and the smallest 1 inch Our ladies' 

gloves were being shipped in six different sizes of boxes under four different colors and 
designs of labels; the boxes themselves were wrapped in three different designs of em- 
bossed paper. One box proved adequate to handle all merchandise formerly shipped in 
six different sizes of shelf packages, and, of course, the design on this box matched exactly 
that of our other new packages, and its color combination was exactly the same as our 
women's and children's underwear boxes" (Clinton K. Royce, Simplification of Packages 
for Department Store Private Brands ["Packaging Series," No. 4 (New York: American 
Management Association, 1942 ) ] ) . 


tions is achieved. In one particular instance, a manufacturer of breakfast 
cereals repackaged his line "at no cost." In other words, according to 
this manufacturer, his cost reduction more than compensated him for 
the expenses assumed for the repackaging effort. At times it is difficult 
to determine whether the major objective is promotional or cost reduc- 
tion. For instance, Standard Brands, Incorporated, repackaged its Chase 
and Sanborn coffee and later widely publicized the claim that, although 
its coffee was packaged in a cheap paper container, the speed of delivery 
to the dealer, careful watch of inventories, and the fact that the date 
of packing was placed on the package fully protected consumers against 
stale coffee. As a result of this cheaper packaging, it was claimed that 
the same quality was being sold at lower prices than formerly. The 
implication was that others who sold their coffee in vacuum-packed 
cans were not giving as good a value because of the additional packag- 
ing costs assumed. In this instance, cost reduction was used as a promo- 
tional weapon through its reflection in price decrease. 

There are other possibilities of cost reduction in production and 
transportation. New packages may pack more easily and with reduced 
space wastage in large shipping cartons. The space needed to carry 
inventories may be less with the new packages. Perhaps a change may 
be made to take advantage of new packaging machinery by which 
filling costs can be reduced. Also, if the new packaging materials used 
are lighter and less bulky, there may be some possibility of reduced 
transportation costs. If a company is selling on a delivered basis by 
allowing freight on shipments over a minimum size, this saving may 
be a substantial one. Again the paper milk container in contrast 
to the bottle furnishes a good example. "The filled fiber container 
weighs only 40 per cent as much per quart as filled bottles, and occupies 
one-half as much space. Ice requirements for refrigerating the paper 
containers are only 10 per cent of those for glass. Whether these sav- 
ings offset the cost of the paper containers is a neat problem " 15 In 

this instance, as in many others, the cost of individual items or opera- 
tions may vary either upward or downward in a repackaging operation. 
For instance, material costs may be higher but packing and transpor- 
tation costs lower. Evidently the cost of the paper container in 1940 
was between eight-tenths and one cent per quart more than the cost 
of the glass bottle after taking into consideration reuse. In certain 
locations they were charging one cent more for quarts in the paper 
containers, so the cost reductions noted above did augment profits. At 

15 Business Week, November 2, 1940, p. 32. 


that time there was much controversy over comparative costs, as would 
be expected during a period of change. At least, it appears that savings 
in packing and shipping may be substantial, and thus repackaging may 
be profitable, although the costs assumed are high. In this connection 
it should be realized that per unit savings may appear to be very small 
in relation to the cost of the whole packaging operation, but, with a 
large volume, unit savings soon reach a substantial total. Therefore, 
companies which have a national market for a product can afford a 
heavy expenditure for repackaging if savings are likely and if there is 
reasonable probability that promotional advantages will be increased 
rather than sacrificed thereby. 

In the instances noted, cost reduction has been a secondary, rather 
than a primary, objective. It should not be inferred that this is always 
the case. In large concerns in the food and drug industries, research is 
continually going on, the primary objective of which is to reduce pack- 
aging costs. Any changes in materials or processes which will have a 
favorable effect on costs without reducing the quality of the product 
may result in a substantial increase in profits, for the unit saving is 
applied to such a large volume of output. 16 Furthermore, when techno- 
logical advance is as rapid as at present, the likelihood of favorable 
developments from the cost angle is great. Therefore, a continual 
awareness of changes is needed. 

Compliance with Legislation. — There is one further objective in 
repackaging which deserves mention, particularly at the present time. 
It is to satisfy governmental demands as expressed in legislation. The 
Food, Drug, and Cosmetic Act enacted in 1938 made many demands 
upon manufacturers in regard to packaging and labeling and has neces- 
sitated numerous package changes. Certain of its provisions are designed 
to protect public health while others are designed to give the consumer 
a truer impression of the product under consideration at time of pur- 
chase. It is forbidden to pack any food, drug, or cosmetic under unsani- 
tary conditions such that the product is contaminated. Similarly, the 

16 "The function of package research may be most tangibly explained by a few specific 
examples of achievement. Take, for instance, a paper used for machine wrapping of choco- 
late. The company was once using a sheet costing 12 cents a pound that was absolutely 
unsuitable for machine handling and did not give good protection to the product. Labora- 
tory findings revealed a paper at 9 cents a pound with better protection and satisfactory 
machine handling properties. In another case, the laboratory discovered by careful per- 
formance tests a fibre-bodied canister for cocoa that gave as good protection as a former 
container at a saving of $5.20 per thousand. When millions of packages are produced 
annually, it is easy to comprehend the value of such package research" (Lucius W. Elder, 
Jr., "General Foods Inside Story," Modern Packaging, Vol. 20, No. 7 (March, 1947) 
p. 119. 


container may not be made of any substance which will render the 
contents injurious to health. Metallic trinkets and other inedible sub- 
stances may not be packed with confectionaries. No substance may be 
added to a food or mixed or packed therewith which will increase its 
bulk or weight and thus, when packaged, make it appear that greater 
quantities are being purchased than actually are. The provision which 
is in all probability most difficult for the manufacturer to interpret is 
the one which outlaws any food, drug, or cosmetic container which is 
so made, formed, or filled as to be misleading. Furthermore, for food 
containers a minimum percentage of fill may be prescribed by the Food 
and Drug Administration ( F.D. A. ) . 

There can be no legitimate quarrel with the objectives which have 
prompted these provisions of the act. Reputable manufacturers do not 
use false bottoms in containers or deceptively large outer containers in 
relation to those within which actually hold the product. Nor do they 
strive to mislead the consumer by leaving a package partially empty. 
When there is no regulatory legislation, however, a manufacturer may 
be tempted — even forced — to use such practices in order to compete 
with less reputable concerns which do. When all are restrained from 
questionable practices, the situation is a much healthier one. The 
actions of a few manufacturers who are not loath to adopt such prac- 
tices are not allowed to jeopardize the position of the consumer or that 
of their more reputable competitors. 

Despite the fact that the majority of manufacturers agreed in prin- 
ciple with the packaging provisions of the Act, still many complications 
have arisen in their attempts to meet the demands of the F.D.A. No 
basis for judgment has given manufacturers more difficulty than the 
question of slack fill. For instance, the F.D.A., soon after the Act 
went into force, seized shipments of many nationally advertised brands 
of toothpaste and charged that the cartons were deceptively large, inas- 
much as the product itself in each instance occupied only from 20 to 30 
per cent of the inside space of the carton. Manufacturers were forced 
to develop new cartons which were smaller but still held the same-sized 
tube. In order to eliminate as much air space as possible, F.D.A. like- 
wise insisted that the tubes be placed diagonally in the cartons. Odd- 
shaped bottles have likewise been the subject of F.D.A. judgments, as 
they necessitate larger outside containers than smooth bottles or tubes 
and thus may deceive consumers as to the amount of product actually 
inclosed. Standards of fill have been formulated for peas, tomatoes, 
apricots, peaches, pears, cherries, and canned shrimp. "It is generally 


considered that in order to avoid a charge of slack fill, a can must be 
rilled to not less than 90% of its total capacity, although this fill has 
official standing at present in only one product, that for canned 
tomatoes." 1 ' For other products this percentage of fill would be difficult 
to attain, particularly so because of the need for outside containers. 

The Notices of Judgment issued by the F.D.A. under the heading 
of "Drugs in Deceptive Containers" have been numerous. 18 Containers 
have been found with false compartments not intended for use; glass 
bottles have been deeply paneled on the sides and indented at the bot- 
tom; covers have been unduly raised, thereby increasing the size of the 
outside container; and containers have been deceptively packed through 
pyramiding of the contents downward. Each of these practices has been 
the basis for Notices of Judgment. In each instance, according to the 
F.D.A. , buyers have been misled as to the actual quantity of product in 
the package. While in many cases there may be no intention to deceive 
the buyer, still intention to deceive is not essential to a finding on the 
part of the F.D.A. that a package is, in fact, deceptive. In cases involving 
these practices in the construction or packing of containers, manufac- 
turers have contended that a statement of the correct net weight or 
measure of the contents on the label would protect the user and also 
that a statement of the number of portions of a product included when 
such designation of contents was customary in the trade would do like- 
wise. In neither case was such a statement considered by the F.D.A. as 
a proper defense if the package itself was deceptively constructed or 

Manufacturers can now be guided in their packaging activities by 
the material contained in these Notices of Judgment. They are now 
sufficiently numerous and comprehensive to provide the information 
necessary for work on package designs. While there are still cases in 
which the manufacturer may have some doubt as to whether the pack- 
ages which he has developed comply with the Act, still a preliminary 
opinion can frequently be secured by request to the F.D.A. as to whether 
the packages are likely to be the subject of later judgments. 

17 Label Weights for Canned Foods (Washington: National Canners Association, 
1941, revised), p. 4. 

18 The Act, sec. 705 {a) requires that the "Secretary shall cause to be published from 
time to time, reports summarizing all judgments, decrees, and court orders rendered under 
the Act including nature of charge and disposition thereof." In fulfilment of this require- 
ment the Federal Security Agency, F.D.A., issues Notices of Judgment under the Federal 
Food, Drug, and Cosmetic Act. Approximately 1,350 Notices of Judgment were issued 
up to and including 1945. 


Initial Step in Repackaging 

While some particular objective may be uppermost in the minds of 
executives when repackaging is decided upon, a thorough review of the 
features of the old packages is likely as a preliminary step. This fre- 
quently calls for a survey to discover consumers' attitude toward the 
packages then in use. It is not safe to assume that they have no objec- 
tions to the company's packages even though they continue to purchase. 
A combination of a really superior product and an inferior container is 
not uncommon. In a sense the consumer purchases under protest and 
is thus particularly vulnerable to the promotional efforts of competitors 
and the suggestions of retailers directed toward substitution of some 
other brand for the one habitually used. The difficulty recognized by 
the consumer may at times be easily overcome in a new package. For 
instance, a bottle used for French salad dressing had such a narrow base 
that it was unstable, particularly when placed on the wire shelves of a 
refrigerator. It frequently overturned, and then, if the top was not 
screwed on tightly, the contents of the bottle leaked out. One such 
occurrence as this may be enough to induce a housewife to shift to some 
other brand. It might appear that a manufacturer would easily recognize 
such deficiencies in his packages. However, it is very difficult through a 
purely deductive approach to determine what the attitude of consumers 
toward a package will be. It is much safer, as a preliminary step in 
repackaging, to conduct a consumer survey to determine present atti- 
tude toward your packages and those of your competitors. 19 

The features of a package on which consumers are particularly 
qualified to give significant information are size, shape, and closure. 
They can likewise indicate whether a package usually gets to them in 
good condition and whether the contents have deteriorated in quality 
during the distribution process. Substantial variation in quality will be 
recognized by the consumer. This may be an outgrowth of inadequate 
packaging materials, which fail to protect the product against moisture, 
or other factors which cause deterioration. Consumers may also express 
opinions of significance to management on the relative desirability of 
transparent versus nontransparent wrappings, glass versus tin or plastic 
containers, and the reuse value of certain container types. 

19 See A. R. Hahn, Packages Women Like — and Dislike: A New Sales Management 
Survey (reprinted from the February 15, March 7, and March 15, 1941, issues of Sales 
Management) . In this survey slightly over a thousand women were interviewed in eleven 
cities in order to determine their attitudes toward various packages and particular features 
of packages. In this particular survey the Morton Salt package led in popularity. It was 
considered convenient, and there was wide acclaim for the pouring spout, which was easy 
to use and prevented wastage. 


This by no means exhausts the list of package features on which the 
consumer can give useful information. It does suggest the importance 
of securing information from the consumer as a first step in the repack- 
aging process. Specifically, the manufacturer must have information on 
questions such as the following: Is the range of sizes in which the 
product is offered sufficiently wide in view of the varying conditions 
under which the product is used, the habits of users, and the range of 
purchasing power? Does the shape of the container afford reasonable 
access to the contents? Does the package have the needed degree of 
stability in view of the customary manner of storage? Is the package of 
acceptable shape for storage in refrigerators or on shelves? Is the pack- 
age easy to open and close? Is the device used for emptying the package 
one which will avoid spilling and wastage? Is the closure effective in 
maintaining the quality when the product is customarily used over a pe- 
riod of time and stored in the original container? Does the package reach 
the consumer in good condition? Does the package protect the contents 
so that quality does not vary substantially between the times of manu- 
facture and of use? The answers to these questions and others of like 
character provide a partial basis for redesigning packages. They do not 
provide the entire basis, for considerations of dissimilar character like- 
wise play an important role. Consumer desires should be known and 
catered to, in so far as practicable, but too great diversity in packages is 
restricted by production and marketing costs. It is frequently a matter 
for compromise between acceptability of packages to the consumer and 
the cost involved. 

Questions of Organization and Procedure 

In view of the nature of the problems presented, the actual work of 
developing a new line of packages is likely to be carried on jointly by 
company personnel and outside organizations or individuals. To a very 
considerable extent it is a job for specialists. For instance, it is becom- 
ing more usual for concerns to engage the services of professional 
designers. They may have specialists associated with them in the use 
of color or other features of design. Material producers, such as the 
paper and glass companies, have much to contribute and often co-op- 
erate actively. They may have specialists in moisture control or other 
technical features of packaging. Producers of packaging machinery 
must often be consulted, as well as producers of adhesives and coatings. 
Each has a separate function to perform to which his specialized knowl- 
edge can be applied. Packaging must therefore be a co-operative effort 
with many parties involved. 


Company Organization. — Within a concern, also, packaging in- 
volves joint effort on the part of many departments and individuals. 
The packaging problem is one of those which cuts across departmental 
lines to such an extent that it is not a departmental problem as such but 
rather a company problem. The sales, research, advertising, production, 
and purchasing departments all have a legitimate interest both in initial 
packaging and in package changes. Furthermore, each has something* 
of significance to contribute when decisions are being made. 20 A manu- 
facturer of ethical drug products felt this so strongly that each of ten 
departments was represented on the packaging committee. 21 Moreover, 
each department is likely to want "a finger in the pie" from the stand- 
point of self-protection. Otherwise, they would have responsibility 
without the needed authority. Only by allowing each department to 
have a voice in package changes will the necessary safeguards be estab- 
lished. For instance, a package might be wholly acceptable to marketing 
executives but appear quite impracticable to other executives who were 
responsible for the control of cost, packing, or shipping. Only by having 
all interested parties represented are the necessary compromises likely 
to be made. Through such a procedure the most acceptable packages, 
all things considered, may emerge from the packaging effort. 

In a situation such as this a committee form of organization is likely 
to evolve. Sometime ago the American Management Association con- 
ducted a survey to determine present practices and possible trends in 
the organization and operations of package-development departments. 22 
Evidently no attempt was made to get a truly representative sample of 
all companies which package their products. Of the thirty companies 
which furnished information, sixteen stated that package-development 
departments were already included in their organizations. Eleven other 
companies reported that they had packaging committees. Five com- 
panies had both, the packaging committee serving in an advisory 
capacity. Responses to the survey indicated that in the organizational 
structure the package-development department should be placed di- 
rectly under an executive vice-president or the general manager rather 
than under sales or production departments. As a second choice the 
research and product-development departments were suggested. The 

20 See American Management Association, "Packaging Series," Nos. 8, pp. 8-9, and 
19, pp. 15-16. 

21 "Family Design for an Ethical Line," Modern Packaging, Vol. 19, No. 3 (Novem- 
ber, 1945) p. 101. 

22 Henry J. Howlett, "Survey of Current Operating Practices in Package Develop- 
ment," Modern Packaging, Vol. 17, No. 7 (March, 1944) p. 134. 


packaging committee was usually composed of a chairman, a packaging 
technician, a major executive, and one representative each from the 
departments chiefly concerned. 

From an organizational point of view a packaging department or 
committee should be so placed as to have a reasonable measure of inde- 
pendence of operating departments. In the past the sales department 
has frequently been given too much authority in relation to package 
changes. Nor has it been uncommon for production departments to 
resist package changes which were long overdue. Neither should be 
allowed to dominate packaging work, for under such conditions the 
necessary compromises are not likely to be made. Much can be done by 
a highly competent package department head or committee chairman if 
he has been so trained as to recognize and appreciate the points of view 
expressed by operating department representatives. Training and ex- 
perience in both production and sales are needed in such a position. 

While the rules needed for the guidance of a packaging committee 
may vary under different circumstances as to a company's size or prod- 
uct, the following rules suggested by Baum seem to have general 
significance. If followed in all their implications, they should make the 
work of a committee at least reasonably successful : 

1. The committee shall organize its requirements before selecting the 
designer. Whenever possible I think the committee should prepare a report 
incorporating all its merchandising requirements and technical information. 
This would serve as a valuable check-back during the development and insure 
the incorporation of all the required points. 

2. The committee shall determine in advance the cost, approximately at 
least, of the package development, including designer's fees. This sum should 
be adapted equitably to the whole cost structure. 

3. The committee shall select a qualified designer .... one who is an 
intelligent graphic artist, well informed on general production techniques, and 
able to grasp and apply quickly the requirements placed before him. 

4. The committee shall provide a system of checks and controls to insure 
complete fulfillment, in the finished package, of all requirements. 

5. The committee shall meet at least once each year to make a survey of 
all the company's packaged merchandise and prepare a redesign schedule. Too 
often this important phase of package development activity is left to chance 
suggestion. 23 

These rules suggest, above all else, that the whole question of pack- 
aging should not be handled in a haphazard manner. In a highly com- 
petitive situation there is too much at stake to allow packages to become 

23 Roland L. Baum, A Working Plan for Package Development ("Marketing Series," 
No. 32 [New York: American Management Association, 1938]), p. 20. 


outmoded and obsolete. Just as a line of products needs review to 
provide for new additions and withdrawals, so does a line of packages 
need review likewise. Thus it should be the continuing responsibility 
of some individual or group to make periodic surveys and determine 
whether changes are needed. If the decision is an affirmative one, an 
attempt should be made clearly to visualize the objectives of repack- 
aging and the requirements of the new package. The next step, and a 
very necessary one, is to budget the cost and, in the light of cost esti- 
mates, to determine whether the expenditure is likely to be justified by 
the advantages which can reasonably be expected from the change. 
Again, if the decision is in the affirmative, it becomes a question of seek- 
ing people with the requisite abilities to carry the work forward, of 
instructing them, and of setting up controls, such as time limits for 
completion of the work and cost limits for their guidance. Procedural 
rules for disseminating information as the work progresses must also 
be established, and, furthermore, there must be provision made for final 
observation and formal approval on the part of those who are in 
positions of authority. Legal advice should always be sought in order 
to make sure that the packages themselves and the information given 
upon them are in conformance with federal and state statutes, such as 
the Food, Drug, and Cosmetic Act of 1938. More will be said about 
this in a subsequent discussion. Finally, committee work on packaging 
should be of a continuing character, for in a field which changes so 
rapidly vigilance is required if a company's packages are to stay in the 
forefront of consumer acceptance. 

Contribution of Other Concerns or Individuals. — As mentioned 
previously, outside groups or individuals have much to contribute to a 
packaging effort. Material producers often have service organizations 
with elaborate facilities which may be placed at the disposal of concerns 
with problems in the field of packaging. 

The aid of organizations of this character should prove invaluable, 
whether or not the services of a designer are engaged. Obviously, no 
individual company in another field is likely to have as much experience 
or to keep so closely in contact with new ideas about materials. There 
are so many technical problems involved that the services of specialists 
are needed. For instance, a question might arise as to what material 
might most fully protect a product by virtue of its being resistant to 
heat, moisture, solvents, or sunlight with which the package might 
come into contact. Leading material producers with a knowledge qjF the 
properties of the product being packaged can suggest what materials 


are most likely to give the desired protection. Then through tests the 
relative adequacy of each can be determined. Furthermore, they are 
likely to have the equipment necessary for such tests. Some bias because 
of greater interest in certain packaging materials than in others, in 
plastic or glass, for instance, rather than in transparent film or waxed 
papers, might be present, but this could be counteracted by discussions 
with producers of various materials. In the complicated activity of 
package development the material producers have a real contribution 
to make, and they are now doing much to aid the producers of packaged 

The task of the professional designer in reference to packaging is 
usually of a dual character. He serves in his capacity as a creative de- 
signer but also performs a co-ordinating and liaison function between 
the other parties involved. In reference to designing as such, his task is 
to translate the often nebulous and half-formed ideas of a company's 
personnel as to what a package should be into reality. It is essentially 
a creative function and one which requires considerable ability and 
imagination. Management may know that a package is ineffective and 
have some rather definite ideas as to the reasons therefore, but to deter- 
mine just what package characteristics will be more acceptable is the 
work of a specialist. Questions of design bewilder the layman. Matters 
of unity and balance, proper massing, accents, and contrast must all be 
taken into consideration. Color is a highly technical subject, and ac- 
ceptable selections, particularly of combinations, can be made only by 
an expert. Questions such as the effect of shape on the consumers' 
estimate of the amount inclosed, the desirability of certain color com- 
binations, and the relative effectiveness of pictures as over against 
abstract patterns or other forms are all involved in designing work. 
On all these matters the professional designer builds up a body of train- 
ing and experience which makes him particularly useful to manage- 

In order for the designer to work successfully, he must be furnished 
with a body of information by the company which retains him, probably 
through a packaging department or committee. He must get a "feel" 
of the situation in which he is working. In one instance, a designer 
spent the first two weeks of his employment in the factory of his client 
in order to become thoroughly acquainted with the product, production 
technique, and available packaging equipment before proceeding with 
preliminary work on designs. In particular, he must get a company's 
merchandising objectives well in mind. He must know the difficulties 


which he is expected to overcome. As noted previously, these may be 
concerned with inadequacy of the package from the consumer angle; 
lack of display in retail outlets; lack of the desired family resemblance; 
unduly high costs of material, filling, or labeling; or the failure of a 
package to meet requirements imposed by legislation. The designer's 
effectiveness depends largely on whether he is initially brought up to 
date on a company's problems and objectives. If the objectives are 
reasonably clear, a design to meet them may be found rather quickly. 
It is a conditioning process — one which is highly necessary if the de- 
signer is to behave rationally in helping to solve a company's packaging 

The designer also has a co-ordinating and liaison function to per- 
form. Different departments may have evolved tentative solutions to 
a packaging problem. These must be evaluated and, if possible, recon- 
ciled. In a sense he may become the arbiter between contending 
factions. This is not a particularly agreeable function to perform, but it 
is a necessary one. It is a function which can often be performed more 
acceptably by an outsider than by a company executive. If a designer 
is well qualified for his tasks, he will possess a working knowledge of 
materials, packaging machinery and its operation, lithographing, and 
the manufacture of cartons, bottles, and other packaging materials. 
This does not imply that he should be an expert in any one of these 
lines, but he should be able to act as an effective liaison agent with con- 
cerns which are engaged in these activities. On questions of filling 
processes and costs he will work with the equipment manufacturers. If 
he needs information on the practicability of a certain shape of bottle 
and its cost, he will turn to the bottle manufacturer. His task is to 
utilize the special services offered by other interested parties in so far 
as they will contribute to the desired result. Better co-ordination may 
thus be attained in the whole complex process of packaging. 

In summary, packaging for many concerns is a continuing activity 
and one which therefore calls for some permanent organizational struc- 
ture. The expense involved in packaging is sufficiently great to merit 
continued study. Furthermore, a package which is not acceptable to 
consumers can easily jeopardize a company's position in the market. 
Continued research in packaging is justified by the presence of this 
risk factor. The establishment of a packaging department or a pack- 
aging committee, if it is given the required responsibility and authority, 
will give some assurance to management that the problem will not be 
neglected or handled in a haphazard manner. 


From an organizational point of view, it is largerly a question of 
securing the proper measure of co-operation among numerous inter- 
ested parties and co-ordination between their activities. Packaging is 
a company problem rather than one which concerns only one depart- 
ment. Most departments of a business concern are affected by decisions 
on packaging and have something of importance to contribute in the 
making of decisions. It is also a task in which outside specialists must 
be used, particularly the professional designer and the materials pro- 
ducer. In the work of packaging there is always some conflict of 
objectives involved between those which are strictly utilitarian and 
those which are promotional in character. Certain interested parties, 
such as the sales and advertising departments, are primarily interested 
in promotional objectives, whereas other parties are more interested in 
costs. Thus there is always the need for negotiation to affect the neces- 
sary compromises. These can be made intelligently only if all parties 
concerned have the opportunity to express their views and thereby 
apply their specialized training and experience to the solution of pack- 
aging problems. 

Market Testing of Packages 

The final step in any packaging effort is market testing. When the 
package is created initially or redesigned, it should first be sold under 
test conditions. A test of this character may reveal certain defects even 
though considerable care was taken to ascertain the desires of the con- 
sumer as an initial step in the repackaging effort. Procedures in testing 
were discussed in a preceding chapter and need not be repeated. It is 
sufficient to note that this final step must be taken if the manufacturer 
is to have reasonable assurance that his product will be acceptable to 


Alderson, Wroe, and Aiken, B. B. Merchandising Requirements of the Drug 
Store Package. "Department of Commerce, Domestic Commerce Series," 
No. 73. Washington: U.S. Government Printing Office, 1932. 

American Management Association. Technical Advances in Packaging. "Pack- 
aging Series," No. 11. New York, 1944. (Note article by W. H. Graebner, 
"The Application of Humidity Equilibria to Package Engineering " 

American Management Association. Package Standardization and Simplification. 
"Packaging Series," No. 4. New York, 1942. (Note in particular articles 
by Clinton W. Royce and Frank W. Batchelder. ) 

American Management Association. The Package as a Selling Tool. "Packaging 
Series," No. 19. New York, 1946. (Note in particular articles by Richard 


D. Elwell, "The Top Management Approach to Packaging"; and Willard 

F. Deveneau, "Package Design Trends and Standards." 
American Management Association. "Consumer Marketing Series," Nos. 6 

(1931); 15, 16, 17 (1935); 20 (1936); "Marketing Series," Nos. 31, 32, 

33 (1938); 38 (1940); 41 (1941). 
Breyer, Ralph F. Bulk and Package Handling Costs. "Packaging Series," No. 10. 

New York: American Management Association, 1944. 
Frey, Albert Wesley. Manufacturers' Product, Package, and Price Policies, chaps. 

xi and xii. New York: Ronald Press Co., 1940. 
Hahn, A. R. Packages Women Like — and Dislike: A New Sales Management 

Survey. Reprinted from the February 15, March 1, and March 15, 1941, 

issues of Sales Management. 
Herrick, Arthur D. Food Regulation and Compliance. New York: Revere 

Pub. Co, 1944. 
Howlett, Henry J. "Survey of Current Operating Practices in Package Develop- 
ment," Modern Packaging, Vol. 17, No. 7, (March, 1944) p. 134. 
Larrabee, Carroll B. How To Package for Profit. New York: Harper & Bros, 

Nash, Ben. Developing Marketable Products and Their Packages. New York 

and London: McGraw-Hill Book Co, Inc., 1945. 
Nash, James Harley. Packaging and the Designer. "Packaging Series," No. 14. 

New York: American Management Association, 1945. 
Phillips, Charles F. (ed.). Marketing for Manufacturers, chap. vii. Chicago: 

Richard D. Irwin, Inc., 1946. 
Specht, F. W. Pre-packaging of Fresh Meats. Chicago: Armour & Co, 1946. 
The Curtis Publishing Co, Research Department. Frozen Foods. Philadelphia, 

Toulmin, Harvey Aubrey, Jr. A Treatise on the Law of Food, Drugs, and Cos- 
metics. Cincinnati: W. H. Anderson Co, 1942. 

Chapter VII 

A LABEL is an integral part of a package. It is that part which is 
intrusted with the task of identifying the producer and of pro- 
moting a product's sale at time of purchase. By strict definition the 
word "label" is not entirely satisfactory for the purpose of this chapter. 
A label has been defined as a slip of paper, metal, or other substance, 
affixed to anything and indicating its contents, ownership, source, or 
destination. But frequently, in actual practice, such information is 
placed on the material of the container itself rather than on a separate 
sheet of material which is later attached. Or information may be given 
on what is known as an "insert," that is, a printed leaflet or folder 
which is placed within the package. At times such a leaflet is bound 
to the package in some manner. The essential fact is that the informa- 
tion accompanies the product. 

The Food, Drug, and Cosmetic Act of 1938 draws a distinction 
between the terms "label" and "labeling." A "label" is defined as "a 
display of written, printed, or graphic matter upon the immediate 
container of any article" or upon the outside container or wrapper, if 
needed there to attain full visibility. 1 "Labeling," in contrast, includes 
labels, but alo extends to "other written, printed, or graphic matter ( 1 ) 
upon any article or any of its containers or wrappers or ( 2 ) accompany- 
ing such article. 2 According to these definitions "labeling" is much the 
broader term, as it includes all that may accompany a product for the 
purpose of indicating its source, nature, ownership, or manner of use. 
Presumably, the information on a label as such is accessible to the 
potential buyer prior to actual purchase, whereas other material in- 
cluded under labeling may or may not be so accessible. But this dis- 
tinction between the two is not commonly recognized, although it may 
be a very useful one. Product inserts, for instance, would not be com- 
prehended within the term "labeling" as considered by many writers 
on the subject. 

Many items of diverse character are placed on labels. The pro- 
ducer's name or perhaps a distributor's name, a brand, or a trade-mark 

1 Federal Food, Drug, and Cosmetic Act and General Regulations for Its Enforcement 
("Service and Regulatory Announcements," No. 1 [United States Department of Agricul- 
ture, Food and Drug Administration] ) , p. 4. 

2 Ibid. 



serves to identify the source of supply and to indicate quality. Pictures 
or color patterns are likely to be present — often pictures of the mer- 
chandise within the package. There is also printed material of an 
informative sort on the label, which serves to instruct the purchaser in 
regard to the materials from which the contents are made, the product's 
uses, the manner in which it should be used or cared for, or its amount 
in weight or volume terms. 

All questions relating to the content of labels will not be dealt with 
here, however. Questions of branding and trade-marks were considered 
previously. Nor will questions of design and color be considered 
as they are technical ones which require the attention of experts in 
such fields. Suffice it to say that their importance is great in relation to 
the packaging of consumer goods. Here we shall be chiefly concerned 
with the questions involved in giving information to purchasers on the 
face of the package and, briefly, with alternative means of accomplish- 
ing like objectives. 


Few marketing problems have received more attention in recent 
years than that of informative labeling of consumer goods, and it is 
likely that the present decade will witness many changes in labels in 
order to make them conform to the requirements of legislation and the 
informal demands of consumer groups. Both legislation and consumer 
interest are in response to a growing realization that the multitudinous 
variety of consumer goods is not being appraised successfully by the 
great majority of consumers when purchases are made and, further- 
more, to a feeling on the part of many influential people that business 
concerns have not taken sufficient responsibility upon themselves for 
providing information which would enable the consumer to make 
intelligent choices. Of course, there is a difference of opinion on the 
latter point, but there can be little doubt of the inability of the con- 
sumer correctly to evaluate the many offered units of most com- 
modities. Values are, of necessity, hidden in the commodities, and the 
ready determination of those values even by experts might not be 
possible. By simple observation an expert would probably be able to 
determine, or at least make a shrewd guess concerning the relative 
proportions of cotton and wool in a textile, but most consumers could 
not be expected to do so. For many food and drug products only 
chemical analysis would reveal the components of each, and even 


with such knowledge at hand there would be considerable doubt as to 
which of two products suggested for a like purpose would yield the 
greater amount of utility to a potential consumer. In view of the wide 
range of products offered for purchase; the very considerable number 
of different brands of a given product, such, for instance, as toothpaste 
or shaving cream; the complexities of products; and the none too effec- 
tive means provided for aid in making a choice, it is surprising that 
consumers make as reasonable choices as they apparently do. The prob- 
lem has always existed, but it has been accentuated by greater product 
differentiation and by packaging which makes observation and direct 
comparison when purchasing more difficult. Under such conditions 
the desire for more information on labels or by other means was to be 
expected. Thus it should be recognized that the demand for more 
informative labels is only one expression of a general movement which 
has as its objective the attainment of more rational bases for consumer 
choice in the exercise of the purchasing function. 

Various groups have actively interested themselves in the problems 
of labeling and the broader problem of standards for consumer goods. 
Some of these are governmental; others are private organizations. One 
of the first steps taken by the latter was the creation of the Advisory 
Committee on Ultimate Consumer Goods of the American Standards 
Association. Later the National Retail Dry Goods Association started 
a program on consumer relations. From these beginnings the National 
Consumer-Retailer Council, Incorporated, was formed as a clearing- 
house, a research and publicity organization for a number of groups. 8 
Some of the purposes of this central organization as outlined in its 
by-laws are as follows: (1) to stimulate interest on the part of con- 
sumers, distributors, and manufacturers in the value and use of ade- 
quate standards for consumer goods; (2) to promote the general use of 
informative labeling; ( 3 ) to promote the use of uniform terminology 
in describing consumer goods and services; (4) to promote informative 
salesmanship; and (5) to promote the use of truthful and factual 
information in advertising. Each of the affiliated groups, both individ- 
ually and through the central organization, has done much to encourage 
informative labeling. Representatives of department stores, chain 

3 Representing the consumer are the American Home Economic Association, the 
American Association of University Women, and the General Federation of Women's 
Clubs. The retailer groups affiliated are the National Retail Dry Goods Association, 
American Retail Federation, National Association of Food Chains, National Shoe Retailer's 
Association, and the National Better Business Bureau, Incorporated, 


stores, and independent retailers are all active in the movement, and 
thus the desires of a manufacturer's own customers may force him to 
change his labels so that more information is given. 

Since 1926 the Department of Agriculture, through the Bureau of 
Agricultural Economics and, more recently, the Agricultural Marketing 
Administration (A.M. A.) has worked on the development of standards 
for canned fruits and vegetables and the promotion of grade labels for 
such commodities. Some seventy standards have been established and 
are now in use, although their use is not mandatory. The necessities of 
the war placed further emphasis on informative labeling. In fact, the 
Office of Price Administration (O.P.A.) attempted to make A.M. A. 
standards and grade labels mandatory. However, this attempt incurred 
vigorous opposition in the Congress and was therefore unsuccessful. 
Further comments on A.M.A. standards and grade labeling will be 
made in a later section of this chapter. 

Legislation in the latter part of the 1930-40 decade accounts for 
much of the recent emphasis on questions of labeling. The Federal 
Food, Drug, and Cosmetic Act was passed in June, 1938, and the Wool 
Products Labeling Act in 1939. The former superseded and greatly 
strengthened the Food and Drugs Act of 1906, which, although fre- 
quently amended in the intervening years, still left much to be desired. 
During the five years that the Act was being considered, it was vigor- 
ously contested and even yet is being criticized by some business con- 
cerns and consumer groups. The former believe that unreasonable 
demands have been made upon industry through the passage and en- 
forcement of the Act. The latter, in contrast, feel that the Act does not 
go far enough in demanding that the manufacturer furnish information 
about his product to potential buyers. Still, much additional informa- 
tion was made available to the consumer as a result of the labeling 
provisions of the Act, as we shall see shortly. 

The passage of the Wool Products Labeling Act of 1939 climaxed 
a long struggle on the part of the wool growers and other interested 
parties to force the manufacturer of textiles to state on labels whether 
the wool used is reclaimed or virgin wool. 4 In order to conform to the 
provisions of the Act, wool products at every stage of the way from 
loom to the consumer must carry labels which show the percentages of 

4 See Public Law 850: An Act To Protect Producers, Manufacturers, Distributors, 
and Consumers from the Unrevealed Presence of Substitutes and Mixtures in Spun, 
Woven, Knitted, Felted or Otherwise Manufactured Wool Products, and for Other Pur- 
poses (S. 162') ,' U.S. Statutes 1940 (76th Cong., 3d sess.)> (Washington: Superintendent 
of Documents, 1940), chap. 871. 


virgin wool, reclaimed wool, and other fibers when in excess of 5 per 
cent. Any loading material must also be revealed on the label. Manu- 
facturers, are responsible for the labeling, and their identity must be 
disclosed. Retailers are not liable for any misrepresentation made on 
the labels, and carriers are likewise exempt from responsibility under 
the Act. Objections to this legislation center about both the difficulties 
of compliance and the claim that the consumer receives no actual bene- 
fit in purchasing. Efforts to conform to the provisions of the Act and 
to determine whether the labels are helpful in purchasing will keep 
attention focused on textile labeling for some time to come. 


There has been so much talk about "informative" labeling that it 
may be well to pause and consider the term before proceeding further. 
First, it should be recognized that all labels are informative, even if 
nothing but the name of the maker is given. On the other hand, a wide 
variety of information of every conceivable sort about a product may 
be placed upon a label. It is simply a matter of degree. When govern- 
mental and consumer organizations have written and spoken about 
informative labeling, they have consistently implied that the manu- 
facturer has failed to give sufficient information about his products on 
labels. Informative labeling to them means more informative labeling, 
more dependence upon grades, description and information in regard 
to use, and less dependence upon brand and/or company name. The 
term as generally used connotes labels which give substantially more 
information than manufacturers are in the habit of giving or presum- 
ably would give if left to their own devices. 

Under the general term "informative labeling" we might distin- 
guish various subclasses, such as brand labeling, illustration labeling, 
specification labeling, decriptive labeling, and grade labeling. Neither 
brands, pictures, exposition, nor grade designations are likely to be 
used alone, but usually in combination. But one is likely to be dom- 
inant, that is, to be the main reliance of the manufacturer as an indi- 
cation of the quality of his merchandise in so far as he relies upon the 
label for that purpose. The latter two — descriptive and grade labeling 
— need a further comment. There seems to be a disposition on the part 
of certain groups to think of informative and descriptive labeling as 
being synonymous and exclusive. As a matter of fact, there is nothing 
more informative than a grade, which is based upon definite standards 


of which there is general knowledge. When the factors which give 
value in a commodity have been definitely determined and when the 
extent to which each is present can be measured accurately, then 
standards can be established and grade symbols assigned. For instance, 
the grade "Number Two Hard Red Winter" for wheat means that the 
wheat in question is one of the five basic classes, that is, hard red winter, 
and that it is subclass No. 2, inasmuch as the wheat conforms to certain 
requirements in regard to weight per bushel, moisture content, dam- 
aged kernels, foreign matter, and the presence of other classes in the 
mixture. By virtue of these grade designations, quality is largely estab- 
lished for the potential buyer, and in the majority of instances inspec- 
tion prior to purchase has been made unnecessary. In a very real sense, 
grade labeling is the acme of labeling effort. As such, it must, of 
necessity, be highly informative, and therefore it is unfortunate that the 
term "informative labeling" has so frequently been used as the an- 
tithesis of grade labeling. Clearly, the preferable term for the former to 
distinguish it from the latter is "descriptive labeling." Widespread use 
of grade labeling for any commodity will always await ( 1 ) the estab- 
lishment of standards, (2) the establishment of a system of grade 
designations, and ( 3 ) the education of buyers and sellers to appreciate 
the usefulness of standards and the value of grades for purposes of 
exchange. Thus descriptive labeling may be the forerunner of grade 
labeling, or, perhaps, its less effective substitute if a product does not 
lend itself to standardization. 



In view of the recent emphasis on labeling, many manufacturers 
are being forced to take some action. At times action is obligatory, as 
it is required by legislation. But frequently, when this is not the case, 
pressure for action is being applied by consumer and retailer groups, 
and the manufacturer has either to change his label or to defend his 
position in relation to old labels. Some manufacturers are actively 
opposing informative labeling, but this seems to be shortsighted policy. 
A much better policy is suggested by the statement of a textile manu- 
facturer who said: "The consumer movement has settled informative 
labeling for us. We are going to have it whether we like it or not, and 
I do not see how any progressive manufacturer, proud of his product, 
could wish otherwise. The real problem in informative labeling is not 


whether it is a good thing, but how to guide it along practical lines." 5 
There is wisdom in this attitude. When the handwriting on the wall 
becomes reasonably clear, the situation requires adaptation to a new 
set of conditions rather than blind opposition to change. 

This general position is strengthened by a number of other consid- 
erations. The sponsorship of the informative labeling movement is 
excellent. It consists of articulate and reasonably well-informed con- 
sumer groups, and members of these groups control a vast purchasing 
power. Furthermore, the manufacturers' immediate customers — re- 
tailers and wholesalers — are interested. The former are a part of the 
National Consumer-Retailer Council, Incorporated, and the latter, 
although not so definitely a part of the movement, do not appear to 
be in opposition. Many governmental groups — national, state, and 
municipal — are actively at work on the problem, and they will not be 
satisfied until more information is available to the consumer at the 
time of purchase. 

But of greater importance is the fact that the giving of information 
which will help the consumer purchase more wisely is in line with basic 
economic objectives. Presumably, at least, the purpose of economic 
activity is to satisfy human wants, and only through effectiveness in 
utilization of the purchasing power which he has can the consumer 
maximize his satisfactions. By means of his choices the consumer 
determines what shall be produced, that is, he directs production. Thus, 
if informative labeling helps the consumer to be more effective in pur- 
chasing, then it is a movement in the right direction, and the intelligent 
manufacturer will not assume an antagonistic attitude. Otherwise, he 
will receive the onus attached to opposition to a movement which, 
although perhaps ill-advised at times, still has important economic and 
social objectives. The manufacturer should be reasonably co-operative 
with consumer and governmental organizations which have made 
suggestions on labeling, because it is a part of his social responsi- 
bility to aid the consumer in purchasing, because the suggested methods 
of so doing may be superior to older methods, and because an unwilling- 
ness to co-operate will simply invite governmental action and additional 
control by government which always follows. Through co-operation 
there is hope that the movement may be steered in the right direction. 

5 F. S. Blanchard, Informative Labeling from the Manufacturers' Point of View 
("Marketing Series," No. 34 [New York: American Management Association, 1939]) 
p. 3. 



Manufacturers' labeling problems appear to arise under three con- 
ditions which differ markedly. In the first place, certain laws require 
that the manufacturer take action in order to conform to the laws' 
various labeling provisions. Action is mandatory, and therefore the 
question is not whether to conform, unless, of course, the manufacturer 
thinks, that the law may be unconstitutional, but how best to conform 
in order to protect his own interests. Second, certain government de- 
partments and organized consumer-retailer groups who have interested 
themselves in the labeling question have made suggestions to manu- 
facturers in regard to labeling. Conformance with these suggestions 
is entirely optional. Third, the weight of unorganized opinion as it 
appears in purchasing behavior may suggest that action should be taken 
to modify existing labels. Through his own volition and without sug- 
gestion or coercion from organized outside groups the manufacturer 
may act in relation to labels. There is an area in which he may be 
largely independent in action, at least in so far as any producer can be 
independent. The size of this area depends upon the number and scope 
of governmental stipulations, both affirmative and negative, and the 
extent to which the suggestions of organized groups can be forced upon 
him. For some products it is much greater than for others; but, as we 
have previously noted, the area of independence has been circumscribed 
appreciably by recent legislation. 

The conditions under which problems arise differ in respect to the 
independence in decision and action which may be exercised by the 
manufacturer. In the first, co-operation is mandatory, in the second 
permissive. Through legislation, problems are presented, and some aid 
in their solution is given by administrative tribunals, both directly and 
through a body of judgments, which in time accumulates. Through 
such bodies as the Department of Agriculture and the National Con- 
sumer-Retailer Council, Incorporated, problems are presented as 
change in existing practice in regard to labels is urged, but considerable 
aid is likewise forthcoming from these organizations. However, if the 
members of an industry decide to act as independently as possible, they 
will meet the minimum requirements established by legislation and will 
not be influenced by the work of outside organizations. But whatever 
the condition under which problems arise, there are certain basic prob- 
lems which are likely to be present in greater or lesser degree, and 
these will now be considered. 


Problem of Product Evaluation 

As a preliminary step to a decision regarding the informative con- 
tent of labels, there must be product evaluation. Otherwise, there is 
not sufficient knowledge of the factors which give value in a product. 
These must be determined in order to have bases for judgment as to 
quality. For canned peas the Department of Agriculture has said that 
the important factors are clearness of liquid, absence of defects, uni- 
formity of size and color, tenderness and maturity, and flavor. 6 After 
the factors have been isolated, the question arises as to how important 
each is in relation to the over-all quality of the product. The problem 
involved in answering this question is complicated by the fact that the 
factors are interrelated. Flavor, for instance, is in part determined by 
the degree of tenderness and maturity. In the case of peas the relative 
importance attached to each factor was as follows: clearness of liquid, 
15 points; absence of defects, 15 points; uniformity of size and color, 
10 points; tenderness and maturity, 35 points; and flavor, 25 points. 
Another problem is that of measurement. Is it possible to determine 
with any degree of assurance, in the case of peas, for instance, whether 
a given batch of product should be given 20 points or 25 points on the 
basis of its flavor content? It is a question whether the factors lend 
themselves to quantitative measurement. Surely, precise measurement 
of such characteristics as flavor, color, and aroma is not possible. Other 
characteristics, such as degree of hardness, size, and absence from de- 
fects, are quantitatively measurable. When, as in this case, some of the 
factors which may be used to judge quality are measurable and some 
are not and when, moreover, there is doubt as to whether the relative 
importance of each can be accurately determined, then assignment of 
grades must be in question. But whether grades are established or 
reliance is placed on descriptive terms to denote product quality, still 
the first step is to obtain a thorough knowledge of the important char- 
acteristics of a product and particularly of those which are important 
to consumers. 

Problem of Selection — Information for Labels 

The question of what information to give on labels is, as we have 
noted previously, partly answered for the manufacturer by legislation. 

6 See United States Standards for Grades of Canned Peas ("Service and Regulatory 
Announcements," No. 140 [United States Department of Agriculture, Bureau of Agricul- 
tural Economics] ) . 


Certain types of information must be given if he is to avoid litigation 
and perhaps a court order either to revise labels or to stop selling. In 
relation to other information, it is simply a question of voluntary action, 
which may or may not be prompted by advice from outside organiza- 
tions. Compliance with legislation will first be considered with partic- 
ular reference to the Food, Drug, and Cosmetic Act. 

Compliance with Legislation. — Although a manufacturer may wish 
to comply with legal provisions which pertain to labeling, he may 
experience difficulties in doing so. Many provisions are subject to 
differing interpretations. In time the meaning which is placed on provi- 
sions of legislation becomes clarified through the action taken by admin- 
istrative agencies; but immediately subsequent to a law's enactment 
there is bound to be an interlude of confusion and disturbance among 
both administrators and those whose activities are subject to regulation. 
For some time after the passage of the Food, Drug, and Cosmetic Act 
there were too few administrative decisions to be of much help to manu- 
facturers. While it was true that decisions under the Food and Drug 
Act of 1906, together with its various amendments, covered many 
points and were thus helpful by way of guidance, still the new Act 
made additional requirements and, furthermore, applied to many 
products which previously were not subject to regulation. Cosmetics 
were brought under the law for the first time. The word "drugs" was 
defined more broadly than in the old Act and included articles used in 
the diagnosis of disease and products whose purpose was to affect the 
structure or function of the body, such, for instance, as weight-reducers. 
Therapeutic devices and genuine antiseptics were also included and 
were subject to many of the same rules as drugs. Manufacturers of these 
products, particularly the proprietary medicine producers, had to work 
many changes into their labels if they were to continue the sale of their 
products. Moreover, they had to do so without much by way of admin- 
istrative decisions for purposes of guidance. Now, however, with 
administrative decisions over a period of years and court decisions on 
many cases when the rulings of the F.D.A. were challenged, manufac- 
turers have a basis for guidance on labeling activities. 

The labeling provisions of the Act make many demands upon 
manufacturers. Some of these are easily complied with, whereas others 
present very difficult problems. The provision least difficult to meet is 
the one which states that a packaged food, drug, or cosmetic is mis- 
labeled — or "misbranded" as it is called in the Act — if the label does 
not bear the name and place of business of the manufacturer, packer, or 


distributor and an accurate, statement of the quantity of contents in 
terms of weight, measure, or numerical count. Reasonable variations 
in the quantity are permitted, and exemption from the statement of 
quantity on small packages may be granted at the discretion of the 
administrative authorities. A less specific provision requires that any 
word, statement, or other information which is required on the label 
"be prominently placed thereon with such conspicuousness (as com- 
pared with other things on the label) and in such terms as to render 
it likely to be read and understood by the ordinary individual under 
customary conditions of purchase and use." 7 Whether a label violates 
this provision is, of course, a matter of judgment. Still this provision is 
not difficult of interpretation, particularly in contrast with others of a 
more general nature. 

The new Act uses the wording of the Act of 1906 in that a product 
is misbranded if its labeling is false or misleading in any particular, but 
additional provisions 'put teeth" into the new Act. For instance, Sec- 
tion 201 (n) provides that "in determining whether labeling is mis- 
leading there shall be taken into account not only (among other 
things) representations made or suggested .... but also the extent to 
which the labeling fails to reveal facts material in the light of such 
representations, or material with respect to consequences which may 
result from the use of the article to which the labeling relates, under 
conditions of use prescribed in labeling thereof or under such conditions 
of use as are customary or usual." 8 In short, labeling representations 
may be illegal because of significant omissions as well as because of 
unjustifiable claims. 

Certain labeling requirements apply only to particular product 
classes, that is, either foods, drugs, or cosmetics. Those which apply 
only to foods are concerned primarily with information which will aid 
the consumer at the time of purchase. For instance, a food is mis- 
branded if it is offered for sale under the name of another food or if it 
is an imitation of another food and is not labeled "imitation." The 
label must bear the standard of identity, i.e., the name, ascribed to it 
by the F.D.A., if such a standard of identity has been fixed. A product 
may not bear this name if it has less than the prescribed proportions of 
the standard ingredients. The administrative authorities are further 

7 Public Law 717: An Act To Prohibit the Movement in Interstate Commerce of 
Adulterated and Misbranded Food, Drugs, Devices, and Cosmetics, and for Other Pur- 
poses (S. 5), U.S. Statutes 1938 (75th Cong., 3d sess.) (Washington: Superintendent 
of Documents, 1939), chap. 675, sec. 403 (/) (italics added). 

8 Ibid. 


empowered to list the optional ingredients which must appear on the 
label. If a definition and standard of identity has not been established, 
the label must bear the common or usual name of the food if there be 
such, and the common or usual name of each ingredient, except that 
spices and flavorings may be so designated without naming each. 

A label on food which falls below the fixed standards of quality 
prescribed must bear "in such manner and form as such regulations 
specify a statement that it falls below such standard," 9 but it is not 
necessary to state the extent thereof. If a food purports to be for special 
dietary purposes, the label must bear such information as is prescribed 
by the F.D.A. The labels of foods other than butter, cheese, and ice 
cream must bear information in relation to artificial flavoring, artificial 
coloring, and chemical preservatives unless exemptions are secured 
from the F.D.A. 

The labeling provisions with respect to drugs are largely of a type 
designed to protect public health. A label must bear adequate direc- 
tions for the product's use and warnings against harmful use, such as 
unsafe dosage. The provisions concerning drugs noted before also 
cover therapeutic "devices," which are defined as instruments intended 
for use in cases of disease or attempts to affect the body structure or 
functions. If a homeopathic drug contains any of the listed habit-form- 
ing drugs or any derivative thereof which has been designated by regu- 
lations as habit-forming, the label must declare the name, quantity, and 
percentage of such drug and must bear the statement in juxtaposition 
thereto "Warning — May be habit-forming." A drug recognized in 
an official drug compendium must bear the name which is there used. 
Such a drug must be packaged and labeled in accordance with the offi- 
cial standards. Any divergence in strength, quality, or purity from the 
official standard must be so specified on the label. Nonofficial drugs 
must list the names of the active ingredients and the proportions of 
certain specified substances or any derivative of such substances. Finally, 
if a packaged drug is subject to deterioration, the label must carry a 
statement to that effect. 

Certain labeling provisions for cosmetics are of a type designed to 
protect public health. A coal-tar hair dye must conspicuously display a 
caution to the effect that the product contains ingredients which may 
cause skin irritations on certain individuals and that a preliminary test 
according to directions should first be made. Furthermore, the labeling 

Ibid., sec. 403(A)(1). 


must bear adequate directions for preliminary testing. It must also be 
stated that the product must not be used for dyeing the eyelashes or 
eyebrows and that to do so may cause blindness. The provisions de- 
signed to insure the consumer full information at time of purchase are 
of particular importance, inasmuch as this is the first legislation of this 
type which includes cosmetics. Many claims formerly made for cos- 
metics may have to be modified if there is to be a strict interpretation 
of the clause which outlaws any product bearing a label that is false or 
misleading in any particular. 

Since the passage of the Act, manufacturers have been trying to 
solve their problems in relation to compliance. Now their difficulties in 
so doing are less than formerly, as both Notices of Judgment of the 
F.D.A. and legal decisions of the courts in contested cases constitute a 
considerable body of information for purposes of guidance. Of course, 
there are areas of complete agreement in which compliance is consid- 
ered by the manufacturer to be advantageous. There are probably areas 
of indifference, likewise, where the manufacturer thinks that a certain 
provision is innocuous and thus is willing to comply. There are other 
areas, however, in which a manufacturer may be in hearty disagreement 
with the Act and thus feel that compliance will be prejudicial to his 
interests. In such an instance a very minimum of compliance will be 
attempted for the sake of self-protection. Where there are marked 
differences of opinion, the government cannot expect, nor will it get, 
wholehearted compliance. In still other cases the manufacturer will not 
know whether his labels meet the tests which ultimately may be applied 
to them unless he asks for a preliminary opinion from the F.D.A. If 
action is taken against him, then it becomes a question as to how im- 
portant the changes demanded appear to be and how the suggested 
changes will affect his position in the market. If compliance with de- 
mands is likely to prejudice his interests greatly, then he may resort to 
the courts for final adjudication. This is, of course, a costly procedure, 
and every effort should first be made to settle differences with the 

Notices of Judgment under the Act in reference to labeling have 
had as their bases a multiplicity of practices which mislead the pur- 
chaser in varying degree. Some of them are relatively unimportant, 
while others — for instance, in reference to the effect of overdosage for 
medicines — may be exceedingly important. Many judgments are based 
upon sheer misstatement or lack of truth in the information given on 
labels, others on withholding information of significance, such as the 


possibility of harmful use. Other judgments have dealt with the man- 
ner in which information is placed on labels, such as place, size of type, 
and other questions arising from the provision regarding conspicuous- 
ness with which the information is given. The types of false statement 
on labels for food products have been classified as those pertaining to 
identity, origin, condition, state, treatment, size, shape, style, quality, 
strength, uses, purposes, nutritional value, and medicinal properties. 10 
While these are related and undoubtedly overlap, nevertheless this 
enumeration indicates clearly, as do the provisions of the law itself, the 
great variety of conditions which may be the basis of action by the 
F.D.A. if, in its judgment, the practices of manufacturers do not comply 
with the Act. 

Voluntary Action in Selection. — Despite appearances to the con- 
trary, manufacturers are given considerable latitude in arriving at 
decisions in regard to labeling. Of course, this is particularly true of 
products which are unlikely to be injurious to public health. Until the 
passage of the Wool Products Labeling Act of 1939, there was very 
little control of textile labeling, and the provisions of this Act are not 
particularly onerous. When legislation intervenes, the question of what 
information to give is partially settled, whereas the question of how to 
present the information still remains. In those instances in which there 
is independence in action, the manufacturer must determine what types 
of information to give, how much information to give, and, finally, 
how to give it so that it will be understandable to the potential buyer. 

In selecting types of information it should be recognized that there 
is usually an immense gap between what the manufacturer knows about 
his product and what the consumer knows or perhaps can know. If 
manufacturers of a given product were asked to list those characteristics 
by which the quality of the product could be judged and if consumers 
were asked to enumerate the product characteristics which they consider 
to be important — those things which they would look for when com- 
paring products in purchase — the two lists would usually be substan- 
tially different. In textiles, for instance, there would be items on the 
manufacturers' list which would mean little, if anything, to the great 
majority of consumers. Consider the following quotation from the 
point of view of the knowledge which consumers are likely to possess : 
"In order to buy the best bath towel for her money, a consumer needs 
to know its length and width in inches; its colorfastness; the amount 

10 Arthur D. Herrick, Food Regulation and Compliance (New York: Revere Pub. 
Co., 1944), p. 170. 


and rate of water absorption; number of filling and warp yarns; both 
ground and pile, to the inch; the breaking strength of the ground warp 
and the filling, and whether it was determined by the strip or grab 
method. In comparing various towels it is also helpful to know the 
weight — the number of ounces per square yard — and the number of 
square inches of terry in the entire towel." 11 It is doubtful whether 
some of this information if placed on towel labels would materially aid 
the consumer in purchasing. There might be some possibility of more 
effective selection if the same information was given on labels of differ- 
ent towels which were under consideration, for comparison would then 
be possible. But so much information would be confusing, and, more- 
over, few consumers would know the difference between "filling and 
warp yarns, both ground and pile" or the difference between "the strip 
and grab methods"; nor would they know the meaning of such words 
as "terry." In a product such as sheets a label might specify thread 
count, weight, tensile strength, yarn size, twist, length of staple, per- 
centage of sizing, and shrinkage, in addition to instructions for washing 
and care of the product. Some consumer groups would probably advise 
that all this information be given, whereas certain manufacturers would 
probably feel that such information on a label would divulge the entire 
construction of their products to competitors. Textile manufacturers 
would also claim that to furnish such a list of figures to consumers 
would be of no practical value to them. In fact, if such a list of informa- 
tive items were given for each of four different brands of sheets, it 
would probably take a highly trained technician several hours of careful 
study to weigh one factor against another and thus to determine the best 
quality or the best value among the four samples. 

If such is the case, then the list of items should be reduced to avoid 
confusion and delay in purchasing. Perhaps thread count, weight, 
strength, and shrinkage do, or could be made to, mean something tan- 
gible to the consumer. 12 In relation to this question of selection, a 
department-store executive expressed himself as follows: "I think the 
label which has too much information, to the point where it becomes 

11 United States Department of Agriculture, Guides for Buying Sheets, Blankets, Bath 
Towels (Farmers' Bull. No. 1765 [Washington: Superintendent of Documents, 1936]), 
p. 27. 

12 A survey was made by the National Consumer-Retailer Council, Inc., among con- 
sumers, retailers, and manufacturers to determine what product characteristics should be 
stressed on labels for a number of products. For textiles the survey showed that there was 
a considerable agreement among all parties as to the importance of including fiber content, 
color permanence, and size. Detailed instructions for washing were also considered im- 


confusing or difficult to read, is not going to serve much purpose; that 
a label which is misleading or dishonest is much worse than no label at 
all; that a label which is too technical and too much over the heads of 
the present customer audience is not a desirable thing. The last point 
does not mean, however, that the information must be written down to 
the level of the least intelligent. If the public is ever going to be edu- 
cated about merchandise, we retailers and manufacturers will have to 
provide the education." 13 There is wisdom in these comments, for they 
suggest that labels should be prepared from the consumers' point of 
view and, furthermore, that informative labeling is an educational 
process in which gradual changes are to be preferred. 

Considerable aid in the selection of informative material for labels 
has been given by the Department of Agriculture through the Bureau 
of Agricultural Economics and by the National Consumer-Retailer 
Council, Incorporated. The latter organization has prepared a Master 
Label Outline. It is as follows : 14 

Purpose of an Informative Label 

The purpose of an informative label is to enable the consumer to buy wisely 
and the store to sell intelligently, to the end that the consumer gets the maxi- 
mum satisfaction for the money expended and the store handles the transaction 
with the minimum possibility for returns and adjustment. An informative label 
should give the consumer a definite idea of the quality of the product by telling 
its composition and construction, what it will do, how to use it, and how to 
care for it — as a basis for intelligent choice, and to enable her to compare 
qualities. A definite idea can only be conveyed by specific facts. It is suggested 
that these facts be grouped under the six headings listed below. The order and 
the form used here are not significant. 

Outline for Informative Labels 

It is understood, of course, that labels should conform to local, State or 
Federal regulations where such exist. 

What It Will Do (Performance) 

Degree of color permanence; shrinkage or stretchage; breaking 
strength; seam slippage; resistance to water, perspiration, wind, wear; 
light, heat and power tests; power consumption; cost of upkeep; etc. 

What It Is Made Of (Composition) 

Kind and quality of fiber, metal, wood, leather, ceramics, cement, rock, 
fur, plastics, petroleum products, rubber, paper, bone, chemicals, drugs; 
ingredients of food products; etc. 

13 Harold Brightman, Informative Labeling from the Retailer's Point of View 
("Marketing Series," No. 34 [New York: American Management Association, 1939]), 
p. 15. 

14 Roger Wolcott, for Labeling Committee, Informative Labeling (New York: Na- 
tional Consumer-Retailer Council, Inc., 1941), p. 14. 


How It Is Made ( Construction ) 

Size, weight, number of yarns per inch, weave, number of stitches per 

inch, finish, ply, cut, hand or machine made, pressed, molded, stamped, 

inlaid; etc. 
How To Care For It 

Detailed instructions for washing and/or cleaning; precautions to be 

observed in cleaning or in storage; refrigeration; oiling and greasing; 

polishing; etc. 
Recommended Uses 

Purposes for which it is most suitable; recipes; etc. 
Name of Manufacturer or Distributor 

Name and address of the manufacturer or distributor. 

This outline will serve as a convenient classification of information 
which may be given on labels. It should not be assumed, however, that 
information should, of necessity, be given for a product in each unit of 
the classification. Instead, the procedure is to use the outline as a check 
list and thus to determine whether each sort of information is or is not 
important for the labeling of a particular product. Usually information 
on what a product will do and what it is made of is important to the 
potential buyer. How a product is made and how to care for it may be 
of little or much significance at time of purchase. It all depends upon 
the nature of the product. But a classification such as the one given is 
a convenient starting-point for investigation. 

The National Consumer-Retailer Council offers co-operation to 
manufacturers and distributors in their work on labeling of specific 
commodities. Label forms have been prepared for a number of canned 
goods, for textiles such as sheets and towels, and likewise for certain 
finished items of clothing. Other label forms are continuously in prep- 
aration. Each form shows the kind of information which, in the opinion 
of the members of the Council's Label Committee, is needed by con- 
sumers when purchasing. Informative labels for different qualities of 
the same good to reveal why one item is priced higher than another are 
definitely recommended by the Council. 

In order to accelerate the extension of its program of informative 
labeling, the Council permits the use of the following statement on 
labels which conform to its approved outlines: "This is the type of label 
suggested by the National Consumer-Retailer Council, Inc." 15 Per- 
mission to use the above statement is contingent upon the approval of 
an expert committee, which has the power to enter into agreement 
for its use with any manufacturer or distributor who submits a satis- 

™Ibid., p. 23. 


factory label and furnishes competent technical evidence based upon 
tests of adequate samples that the labels properly describe the goods to 
which they are attached. In addition to the services mentioned, the staff 
of the Council is available for consultation on questions of labeling. 
Furthermore, the giving of aid is not conditional upon assurance by the 
manufacturer or distributor that the Council's recommendations will be 
accepted in whole or in part. These services offered by the Council 
should prove invaluable to the manufacturer or distributor who wishes 
to change his labels and thereby give more information to consumers. 

Problem of Presentation 

The problem of informative labeling is, of course, partly a problem 
of selection and partly a problem of presentation. After a decision has 
been reached on the information which must be given and which a 
concern desires to give in addition, the next problem to be tackled is 
how to give this information in such a way that it will be meaningful 
to consumers. This is, perhaps, the most difficult problem of all, for 
it involves bridging the gap of consumer ignorance either by effective 
word selection, by the use of symbols as evidence of a combination of 
qualities in a product, or by a combination of the two. Here the choice 
is between grade and descriptive labeling which has been so widely 
discussed in reference to canned goods. 

Grade versus Descriptive Labeling. — The problem of grade versus 
descriptive labeling is not entirely one of presentation. Presentation is, 
nevertheless, the end-result after product evaluation and selection of the 
information which is to appear on labels. More often than otherwise 
the nature of the information which is to be presented determines the 
manner of presentation. But there is sufficient doubt in many cases so 
that different producers use either grades, description, or perhaps both 
in giving this information on the product as it goes to the consumer. It 
was noted previously that accurate grading depends upon whether the 
factors which give value in a product can be isolated, in other words 
whether there can be scientific objective standards of quality; whether 
these factors lend themselves to quantitative measurement; whether the 
relative importance of each can be determined; and, where the factors 
are interrelated, whether combinations can be rated effectively. Differ- 
ences of opinion on these questions have recently appeared more fre- 
quently in relation to canned fruits and vegetables than elsewhere. 
Therefore a discussion of the situation in regard to these products may 
be helpful. 


Since 1926 the Department of Agriculture, through the Bureau of 
Agriculture Economics and, more recently, the Production and Market- 
ing Administration, has worked continuously on the development of 
standards for canned fruits and vegetables and the promotion of grade 
labels for such commodities. Some eighty-five standards have been 
established for processed fruits and vegetables and are now in use, 
although their use is not compulsory. An official inspection service has 
been made available upon request to any processor or distributor of 
fruits and vegetables through which quality is determined and grade 
is assigned. In 1939 a continuous inspection service was inaugurated. 
This differs from the customary service in that a federal inspector of the 
Department of Agriculture is stationed continuously at the processing 
plant to inspect each batch of product while it is being prepared and 
canned. Although the packers operating under this service are not 
required to label any portion of their pack on the basis of United States 
grades, it is nevertheless strongly recommended that they use the sug- 
gested A, B, and C grades for the benefit of the ultimate consumer. The 
packer who uses the service may state that his product has been 'Tacked 
under continuous inspection of the U.S. Department of Agriculture." 16 
He may likewise use the designations "U.S. Grade A" or "U.S. Fancy," 
"U.S. Grade B" or "U.S. Choice" or "U.S. Extra Standard," and "U.S. 
Grade C" or "U.S. Standard" on his labels. 17 

The continuous inspection service was first used extensively in 1940 
under an experimental plan sponsored by the National Consumer- 
Retailer Council and the National Association of Food Chains. 18 . This 
plan was accepted by five of the large chain-store companies, including 
the Great Atlantic and Pacific Tea Company. Labels bore the grade 
designations, the requirements to quality under a given grade, descrip- 
tion of contents, and information required by the Food, Drug, and 
Cosmetic Act. Peas, tomatoes, corn, and peaches were grade-labeled in 
the experimental program. Evidently the program was considered suc- 
cessful, because chain stores are still using grade labeling for numerous 
products. Furthermore, in the past few years the continuous inspection 
service has expanded considerably. Now it has passed the stage of being 
an experiment, as 114 plants owned by 87 companies have been ap- 

16 United States Department of Agriculture, Production and Marketing Administra- 
tion, Questions and Answers on Government Inspection of Processed Fruits and Vegetables 
("Miscellaneous Publications," No. 598 [Washington: April, 1946]), pp. 18-26. 


18 See Business Week, November 30, 1940, p. 27; December 28, 1940, p. 22; and 
January 11, 1941, p. 32. 


proved to operate under the service. 19 Data are not available on the 
number of these companies which likewise use the suggested grade 
labels or on the volume of goods which are covered by these labels. 

The grade labels advocated by the Department of Agriculture are 
strongly supported by certain trade-unions and influential consumer 
groups but have been vigorously opposed by most of the large canners 
and by certain publishing houses and advertising agencies. The canners 
have always maintained that subjective factors, such as flavor, which 
determine the quality of canned goods, do not lend themselves to precise 
definition and are thus not capable of measurement. While they are 
not adverse to giving more information on labels, they apparently be- 
lieve that the standards established by the Department of Agriculture 
are not sufficiently accurate to differentiate in quality between different 
batches of product and, furthermore, that brands and descriptive labels 
accomplish differentiation more effectively. They contend that the 
standards are so inexact as to be meaningless and actually perversive in 
use. However, objections are based partly on nontechnical considera- 
tions likewise. Many canners are averse to any extension of govern- 
mental authority into the canning industry, particularly to the 
inspection service which is necessary under the voluntary scheme pro- 
posed by the Department. Finally, the canners feel that grade labeling 
would have a leveling effect, in that all Grade A, B, or C products 
might be considered as identical in quality regardless of source of origin, 
or at least that there might be less hesitancy than formerly on the part 
of consumers to try the graded product of small unknown canners or 

If consumers accorded that much validity to grades, it is possible 
that the large canner might lose some of his hold on the market and 
that small canners or new concerns might thereby secure some com- 
petitive advantage through grade labeling. This is altogether possible, 
for the very fact that their product could be labeled "U.S. Grade A, B, 
or C" after inspection by an agent representing the Department of 
Agriculture would give authority to a statement of quality which a com- 
pany's own claims would not possess in the eyes of consumers. But, the 
larger canners would argue, this quality might be in part, at least, ficti- 
tious because of the ineffectiveness of the standards used for grading 
purposes, and thus the consumer might be deluded rather than helped 
by the grade label. Thus the opposition of the canners rests upon either 
or both of two bases: first, a belief in the inadequacy of specific grades 

19 Letter from the Department of Agriculture, Production and Marketing Administra- 
tion, August 2, 1946. 


for designating quality and, second, attempted self-protection. If the 
real case for the first of these bases is sufficiently strong, the canners will 
probably be able to resist the encroachments on their business of those 
who use grade labeling even with government certification under the 
inspection plan. 

Price control during the war brought the controversy over grade 
labels to a premature showdown. The Office of Price Administration 
(O.P.A.) was under the necessity of establishing price differentials for 
different qualities of the same product and decided to use government 
standards and A, B, C grades rather than the standards of fancy, extra 
standard, and standard. 20 Late in 1942, O.P.A. announced that the 
price on the 1943 pack of canned fruits and vegetables would be tied 
to government grades, which would be required on all labels. This 
announcement loosened a storm of protest on the part of the canners, 
which resulted in an amendment to a bill extending the life of the 
Commodity Credit Corporation. This amendment provided that the 
O.P.A. could establish prices based on specifications and standards only 
if they were in general use and had been lawfully promulgated by an- 
other government agency and if there was no other practicable method 
of price control. 21 Later, in an amendment to an O.P.A. appropriation 
act, Congress banned the use of O.P.A. funds to pay the salary of any 
official who helped to fix ceilings on processed fruits and vegetables in 
terms of grades and specifications "not in general use." As a result of 
these amendments, O.P.A. was gradually forced to abandon most of its 
grade-labeling program, although the grade labeling of meats was 
made mandatory through an order of the Office of Economic Stabili- 
zation. Modification of the program generally followed one or more of 
three patterns: (1) substitution of descriptive labeling for grade label- 
ing, (2) option of placing grades on invoices instead of on labels, or 
( 3 ) pricing on a grade basis but without a mandatory ruling that grades 
be placed on labels. While a measure of control was maintained 
through these devices, still, even as a war measure, government agen- 
cies were unable to make grade labeling mandatory. 

In view of the progress made by government agencies and con- 
sumer groups in inducing processors and distributors to use government 
standards and grade labeling during the past decade and the emphasis 

20 During the war at least 55-60 per cent of the fruits and vegetables processed com- 
mercially were inspected on the basis of United States standards or federal specifications 
and for most of this volume the grades outlined in the United States standards were used. 
This included government purchases for the armed forces, the amount packed under the 
continuous inspection service, and the pack for chain stores and consumer co-operatives. 

21 Business Week, July 15, 1944, pp. 96-102. 


placed as a countermove by other processors and distributors on the 
improvement of descriptive labels, it now seems likely that both types 
of labeling, rather than reliance on illustrations and brands, will be 
given a thorough trial and that conclusions as to the attitude of con- 
sumers toward each type may soon be reached. If buyers heartily 
approve grade labeling, manufacturers and processors may in time be 
forced to use such labels in order to satisfy consumers and distributors. 
If, in contrast, descriptive labeling is more to the liking of consumers, 
less change will probably be made in labeling practice. No matter how 
the controversy ends, there can be little doubt of the fact that labels 
have been improved. Agitation of the Department of Agriculture and 
consumer groups has been partially successful through the introduction 
of grade labels, but it has likewise induced a substantial improvement 
in descriptive labeling, and the consumer is benefited thereby. As a 
matter of business policy, continued resistance to grade labels would 
be ill-advised if descriptive labeling does not prove entirely acceptable 
and if there is a concerted demand for grade labels on the part of con- 

Problem of Nomenclature. — If description is to be relied upon, as 
it must be more or less even when grades are used, the problem of word 
selection to convey ideas to the purchaser is ever present. This is true 
whether the giving of information is mandatory or voluntary. The Food, 
Drug, and Cosmetic Act says that the information demanded by the Act 
should be "in such terms as to render it likely to be read and understood 
by the ordinary individual under customary conditions of purchase and 
use." 22 The responsibility of terminology selection is placed squarely 
on the manufacturer. He must satisfy the F.D.A. that the words and 
phrases which are used do convey certain ideas. The Administration 
must therefore interpret consumer reaction to the language used, in 
order to exercise its authority wisely. When the giving of information 
is voluntary, an in-between regulatory body does not need to be satis- 
fied, but the problem remains. If a decision is made to give certain 
information, in order to be effective it must be understandable, or the 
gesture is futile. But consumers cover a wide range in their ability to 
understand, by reason of variation in their command of vocabulary and 
in their experience with certain products. When the term "ordinary 
individual" is used as in the Food, Drug, and Cosmetic Act, it should 
be interpreted as referring to the great mass of the market, not neces- 

22 Public Law 717, op. cit., chap. 675 (italics added). 


sarily to its least intelligent units. In other words the problem simmers 
down to this question: "What words and phrases can be used to convey 
certain ideas about a product so that if the material is read a great pro- 
portion of potential purchasers will understand and thus actually be 
informed?" This suggests the need of investigation directed at the 
consumer in order to test his reactions to experimental labels. By such 
investigations it may be possible to determine whether the descriptive 
terms convey to the consumer the ideas which the manufacturer expects 
them to convey. 

Technical terms should be avoided unless there is strong evidence 
that they are generally understood. In describing the temperature of 
water it would be much better to use the term "wrist temperature" than 
"98.6 degrees Fahrenheit." The former presumably is understood by 
most housewives, whereas there might be much doubt concerning the 
latter and no means of resolving that doubt if a thermometer was not 
immediately available. This need for re-wording technical information 
calls for much ingenuity on the part of those who construct labels. 
Only through painstaking effort can substitutes for technical terms be 
discovered which fit into the experience of consumers and thus become 
meaningful. In time, through educational effort, a knowledge of tech- 
nical terms relating to products may become a part of the equipment 
of a larger number of buyers. The use of some technical terms on labels 
may hasten the spread of such knowledge. But most information must 
still be given in nontechnical terms and as simply as possible if it is 
actually to aid consumers in purchasing. 

The Use of Inserts. — Finally, it should be noted in relation to pres- 
entation that all the information which is given need not be placed on 
the container. Inserts are widely used, thereby enabling a producer to 
give much more information than would otherwise be possible. What 
is needed to influence purchase — what has real promotional value — 
should not be hidden within the package. But certain types of infor- 
mation, such, for instance, as how to care for the product or how to use 
it, are more essential after purchase. In order to achieve a proper bal- 
ance between printed matter, illustrations, and design factors, only 
about so much information should be given on any package. Because 
of this limitation it is important to consider carefully the relative merits 
of different items from the promotional angle and to reserve the least 
significant ones for inserts. Although other objectives are attained 
likewise through the use of inserts, as, for instance, the promotion of 


other products, explanations of premium offers, investigation of con- 
sumer attitude toward the company's products, and so on, still what 
might be termed "an extension of the label" is a very important objec- 
tive and one of increasing importance in view of the increase in the 
sum total of information now being given consumers. 

Advantages of More Effective Labeling 

There is much evidence that the recent emphasis on labeling is 
producing tangible results. Many concerns have re-examined their 
labeling policy, have decided that the purchaser should have more 
information, and have subsequently redesigned their labels, tags, inserts, 
and other material which accompanies their products. Changes were 
almost inevitable, for many people who were leaders in their respective 
fields were thinking about questions of labeling. Among them were 
consumers, distributors, manufacturers, and, of course, legislators. There 
has been much agitation and controversy which has provoked legisla- 
tion, and, not infrequently, there has been action by manufacturers to 
improve labels in response to public demand which has not crystallized 
into legislation. The highly controversial stage of the movement is not 
yet over, and thus the forms which labeling will take have not been 
determined. There may be more or less of descriptive or of grade label- 
ing or, perhaps, more reliance upon inserts than in the past. There will 
be much by way of experimentation and thus many changes. More 
information than the consumer can readily use may be given by some 
concerns. Overshooting the mark is an accompaniment of any move- 
ment. But there can be little doubt that the consumer is getting more 
information than previously and will get additional information on or 
accompanying the products which he purchases. At least the informa- 
tion is to be made available. The extent to which it is meaningful to 
him and actually aids him in purchase remains to be seen. 

The advantages of more effective labeling could be considered from 
many positions, for instance, the position of the consumer, the retailer, 
the individual manufacturer, an industry, or the economic system as 
a whole. Here our attention will be focused on the advantages which 
may accrue to the individual manufacturer, but these, of course, are an 
outgrowth of the effect on others. Let us note likewise that the position 
of different manufacturers varies greatly. Informative labeling is simply 
a more complete disclosure of the qualities and characteristics of com- 
peting merchandise. Obviously, some manufacturers will welcome, 
while others will not welcome, what might be termed a "showdown." 


This in no manner condemns the concern in the weaker competitive 
position — a position which the concern undoubtedly is attempting 
to improve. But the attitude of such a concern toward informative 
labeling would probably differ from that of a stronger competitor and 
from that of a concern which was trying to hoodwink the public. 

Thus, while the advantages of effective labeling, which will now 
be discussed, do have general validity, still it should be recognized that 
they have varying significances to different manufacturers. Shifts in the 
position of participants in the competitive struggle accompany any 
movement such as this. 

Improved Selling in Retail Outlets. — In the majority of retail estab- 
lishments, particularly the smaller ones which are not departmentalized, 
retail clerks sell a wide variety of merchandise. Because of this fact 
they cannot know a great deal about each specific item. Furthermore, 
a lack of adequate training, inexperience, and frequently sheer inability 
are responsible for ineffective selling. Sales people often find them- 
selves unable to answer the questions of the growing number of cus- 
tomers who wish to know more about the qualities of merchandise 
which they are considering for purchase. In situations such as this 
informative labels are very helpful. They provide uninformed and 
insufficiently trained sales people with pertinent facts at the point of 
sale. Furthermore, when the facts on labels have once been seen and 
used, they become a part of their informational equipment and are 
likely to be used frequently from that time forward. A word of expla- 
nation by the sales person or a suggestion at the right time may easily 
shift a sale from one manufacturer's product to another's. Just the fact 
of additional information may shift a sale, but if the information on 
the label or tag is supplemented by a sales person's comments, which 
amounts to reiteration, the likelihood that the sale will be shifted is 
even greater. It is almost a truism that sales people sell those products 
which they know most about. Thus the use of informative labels may 
be an effective way for a manufacturer to get additional sales emphasis 
on his product in retail outlets. 

It may likewise get additional emphasis on high-quality items in a 
line of products. If the information on the label is truly informative, 
the potential purchaser should be able to determine why certain quali- 
ties are more desirable than others. The reason for price differentials 
will then become apparent. Sales people when presenting merchandise 
are likely to show a number of items, let us say, of shirts or towels, in 
different price groups. They look much alike to the uninformed buyer. 


If there are real quality differences, they are probably not observable by 
inspection. If the buyer asks the clerk why one item shown is higher 
priced than another, the answer which may be given is that the higher- 
priced item is of higher quality, but evidence may be lacking, and thus 
the buyer may be unconvinced. If there can be an immediate compari- 
son through the information given on labels, the dilemma is overcome 
and the higher-priced item may be chosen. If informative labeling has 
this effect, it is of importance, for producers usually make higher net 
profits on the higher-quality items in a line. 

Reduced Returns and Allowances. — Returns to and allowances by 
the manufacturer are in part a reflection of misapprehensions about 
merchandise when it is purchased and ineffectiveness in its use. If the 
consumer expects too much from a product or is not informed as to 
how to care for it, he may become dissatisfied and appeal to the retailer 
from whom it was purchased. The retailer, who is more likely to side 
with the consumer than with the manufacturer, makes demands upon 
the latter for an adjustment. The whole difficulty might have been 
obviated if the consumer had been given instructions for the use and 
care of the product at the time of purchase. A good example of this is 
the need for instructions in regard to the laundering of certain textiles. 

Not only does ineffectiveness cause complaints and demands for 
adjustments, but the reputation of the product suffers in the eyes of 
both the retailer and the consumer. Repeat purchases are less likely, 
and a constant succession of difficulties may cause the retailer to dis- 
continue handling the product. Moreover, those purchasers who are 
dissatisfied may engage in destructive word-of-mouth advertising. If 
informative labeling can do something to lessen complaints, returns, 
and adjustments for retailers and manufacturers, there is much justi- 
fication for it. That it does hold possibilities of so doing is evidenced by 
the fact that the New York Metropolitan Adjustors' Association pro- 
moted a campaign of informative labeling by manufacturers as a means 
of furthering its efforts to reduce costs, losses, and the number of dissat- 
isfied customers. This Association stated that the few stores which 
launched an informative labeling campaign reduced merchandise com- 
plaints appreciably. 

Heightened Plane of Competition. — Reputable manufacturers with 
excellent products often need to be protected against the actions of less 
reputable competitors. Legislation against unfair trade practice, includ- 
ing the recent Wheeler-Lea amendment to the Federal Trade Com- 
mission Act, which prohibits false advertising, and the Food, Drug, 


and Cosmetic Act, which prohibits mislabeling or misbranding, protect 
not only the consumer but also the manufacturer whose products and 
promotional methods are above reproach. The ability of certain pro- 
ducers to compete successfully has often rested on claims in advertising 
and on labels which could not be justified and on the failure to give 
pertinent information which, if given, would jeopardize sale. Both 
these avenues have been partially closed through the recent legislation 
mentioned. Now labeling representations may be illegal because of 
significant omissions as well as because of unjustifiable claims. This curb 
on the questionable procedures used by those concerns which are trying 
to hoodwink the public and those which, although not actually un- 
scrupulous, still crowd the edge of truth in representations about their 
products should raise the level of competition, particularly in the drug 
and cosmetic industries. The good right arm of those companies which 
are trying to improve the plane of competition in the industries of 
which they are a part should be strengthened by more effective labeling. 
In Line with Economic Objectives. — This advantage of improved 
labeling is less specific than others but none the less significant because 
of that fact. In a sense it comprehends the others and thus is likely to 
be overlooked. The final test of any economic action is whether or not 
it increases the satisfaction of human wants. All marketing activities 
are directed at this general objective through getting goods and services 
— both the physical goods and knowledge of them — to consumers 
when, where, and in the form desired. Thus one test among others of 
the effectiveness of a marketing system is whether or not it succeeds in 
adequately informing the consumer about the products which he may 
purchase so that he may choose wisely and thus purchase the product 
which in its combination of qualities, including price, most fully meets 
his individual requirements. It is the considered opinion of many stu- 
dents of marketing that the marketing system, taken as a whole, has 
been more effective in performing its other functions than it has been 
in informing the consumer about products as an aid to purchase. Of 
course, it should be recognized that the difficulty in giving such infor- 
mation has increased as the manufacturer has created new products and 
further variations in old products, both of which broaden the variety 
available for choice. Variety is helpful, inasmuch as a consumer may 
be able to find exactly what he desires, what will give him the maxi- 
mum of satisfactions. But, on the other hand, variety is confusing, and 
unless each product is accompanied by information either written or 
verbal, choice may be less effective than when fewer products were 


available from which to choose. Thus significant questions are whether 
recent and likely future changes in labeling have improved the con- 
sumers' ability to choose wisely and whether the improvement, if there 
has been any, is of advantage to producers likewise. 

It is difficult to believe that consumers are any worse off than before 
the recent changes in labeling were made or that the changes have had 
no effect, either good or bad. Rather it is more reasonable to believe 
that the. area of guesswork has been reduced. Some of the changes made 
mandatory by the Food, Drug, and Cosmetic Act are surely constructive 
and would not be opposed by any reputable manufacturer. In the case 
of canned fruits and vegetables there may be much doubt of the relative 
efficacy of description and grades, but the fact remains that the con- 
sumer is getting much more worth-while information than formerly. 
Witness the attempts of the California Packing Corporation to inform 
consumers in relation to its Del Monte brand by description and the 
attempts of the chain-store companies to inform consumers through the 
use of grades. The effect of changes such as those will not be imme- 
diately apparent. They must be evaluated deductively, at least initially. 
Making consumers informed purchasers is an educational process of 
long duration, and immediate benefits of ample proportions cannot 
reasonably be expected. But in time consumers may learn to use the 
additional information given, particularly when producers become 
more skilful in its presentation. Then important economic objectives 
will have been achieved. 

When a movement has reasonable economic objectives, manufac- 
turers should work in line with it, at least they should not be actively 
antagonistic. If the labeling program is constructive and the position 
of the consumer in purchasing is improved, it is difficult to see how any 
reputable manufacturer with a good product could be greatly injured. 
On the other hand, he is likely to be benefited. If the labeling program 
proves to be innocuous, still participation by a particular manufacturer 
may have some benefit, inasmuch as consumer groups which have 
clamored for more informative labels will be mollified and the onus 
of opposition will not be forthcoming. A good case can be made also 
for the assertion that the major benefit accrues to the manufacturers 
who first comply with suggestions which have good backing and appear 
to have possibilities for consumer benefit. Too great reluctance to 
comply may cast doubt on a manufacturer's policies and products. 

Finally, it is an enlightened policy these days, if not at all times, to 
refrain from giving government a reason for saying that business is 


not acting in the public interest. A very good case can be made for the 
assertion that more effective labeling is in the public interest, and thus, 
i£ for no better reason, manufacturers should co-operate in the program 
by positive action in reference to their own labels in order to lessen the 
likelihood of further regulatory legislation. In other words, enlightened 
self-interest usually demands alignment with, rather than opposition to, 
any general movement which has reasonable economic objectives, 
whether or not the movement in its early days appears to be in part 


Blanchard, F. S. "Informative Labeling from the Manufacturer's Point of View"; 
Harold Brightman, "Informative Labeling from the Retailer's Point of 
View"; Esther Cole Franklin, "Packaging from the Consumer's Point of 
View," in Problems under Informative Labeling. "Marketing Series," No. 
34. New York: American Management Association, 1939. 

Coles, Jessie V., and Erdman, H. E. "Some Aspects of the Arguments against 
Grade Labeling," Journal of Marketing, Vol. IX, No. 3 (January, 1945), p. 

Dameron, Kenneth. "Labeling Terminology," Chicago Journal of Business, Vol. 
XVIII, No. 3 (July, 1945 ) , p. 157. 

Edwards, Alice L. Product Standards and Labeling for Consumers. New York: 
Ronald Press Co., 1940. 

Federal Security Agency, Food and Drug Administration, Notices of Judgment 
under the Federal Food, Drug, and Cosmetic Act. Washington: U.S. Gov- 
ernment Printing Office, 1940-47. 

Federal Security Agency, Food and Drug Administration. Service and Regu- 
larity Announcement: Food, Drug, and Cosmetic No. 1, Revision 2. Wash- 
ington: U.S. Government Printing Office, 1946. 

Herrick, Arthur D. Food Regulation and Compliance. New York: Revere 
Pub. Co., 1944. 

Hotchkiss, G. B. "Some Fundamental Objections to Mandatory ABC Grades," 
Journal of Marketing, Vol. X, No. 2 (October, 1945), p. 128. ' 

Kebker, V. W. "Will Grade Labeling Pay?" Journal of Marketing, Vol. VIII, 
No. 2 (October, 1943), p. 185. 

Manual for Canned Food Labels, 1942: Supplement, Manual for Canned Foods 
Labels, January, 1946. Washington: National Canners Association. 

Moffet, Carol Willis. "Informative Labeling. I"; Joseph Givner, "Informative 
Labeling. II," in Merchandising Aspects of Packaging. "Marketing Series," 
No. 31. New York: American Management Association, 1938. 

Mossman, F. H. "Grade Labeling for Canned Fruits and Vegetables," Journal 
of Marketing, Vol. VII, No. 3 (January, 1943 ) , p. 241. 

National Canners Association. Looking toward Better Labels; and Canned Food 
labels That Meet Consumer Needs. Washington, 1944, 1941. 


National Consumer-Retailer Council, Inc. A Study of Labeling; and How 
Informative Labels Help You Stretch Your Dollars. New York, 1945, 1944. 

Stevens, A. E. "The Case for Descriptive Labeling"; Polly Gade, "The Case for 
Grades and Descriptions"; Donald Montgomery, "The Case for Mandatory 
Grades," in Sales Management, Vol. LIII, No. 24 (December 1, 1944), 
p. 23. 

Temporary National Economic Committee. Investigation of Concentration of 
Economic Power: Consumer Standards, chaps, viii, ix, x, and Appendix. 
"Temporary National Economic Committee Monographs," No. 24. Wash- 
ington: U.S. Government Printing Office, 1941. 

Toulmin, Harvey Aubrey, Jr. A Treatise on the Law of Food, Drugs, and Cos- 
metics. Cincinnati: W. H. Anderson Co., 1942. 

Wolcott, Roger. Informative Labeling. New York: National Consumer Re- 
tailer Council, Inc., 1941. 

United States Department of Agriculture. Questions and Answers on Govern- 
ment Inspection of Processed Fruits and Vegetables. Misc. Publ. No. 598. 
Washington: U.S. Government Printing Office, 1946. 

Chapter VIII 

AFTER a product has been designed and tested and is ready for the 
market, a further step in planning is frequently needed. Particu- 
larly for products with mechanical characteristics, decisions must be 
made and procedures must be developed in reference to the warranty 
and service which will be offered to consumers. 1 This should be con- 
sidered a part of product planning, although it is not immediately 
concerned with changing the physical product or the container in which 
it may appear. In many products a company is not selling only so much 
physical material put together in certain ways but rather a utility or 
service or perhaps a group of utilities which the product is capable of 
giving. In a very real sense the automobile manufacturer sells transpor- 
tation service and the refrigerator manufacturer, refrigeration service. 
Furthermore, the consumer has not actually received what he has pur- 
chased until the service or utility has been secured. In order to get the 
service from the product, he frequently needs the help of the manu- 
facturer. He also desires assurance at time of purchase that help will 
be forthcoming if difficulties are encountered. These are an integral 
part of the product purchased if we use the term in a broad sense. Thus 
planning in regard to them should be considered a part of the broader 
subject of product planning. 

While this reasoning has particular application to mechanical prod- 
ucts, still it is much in point in regard to others likewise. When a well- 
known company sells a product to consumers, at least two things, in 
fact, are being sold — the product itself and the assurance in purchase 
and use which the reputation of the company provides. For products 
such as food and drugs, in addition to company reputation, assurance 
is given by publicity, statements on packages, sales comments in retail 
outlets, and forced compliance with the pure food and drug laws. At 
times even more definite assurance is given against financial loss 
through purchase under "satisfaction or your money back" guarantees. 
For mechanical products such as automobiles, computing machines, and 

1 The terms "warranty" and "guarantee" are used interchangeably. Although they 
have quite dissimilar legal origins, they are now used without apparent distinction by 
business and even in some legal writings. Until recent years businessmen were prone to 
use the word "guarantee," and still do orally, but written representations regarding prod- 
ucts are now commonly called "warranties?" 



much factory equipment definite representations in regard to the prod- 
uct and modes of procedure for the purchaser to follow by way of 
recourse if the product fails to perform satisfactorily are more com- 
monly made. As the purchase is usually a substantial one and as the 
product itself is complex, the buyer needs assurance that satisfactory 
performance will be forthcoming. Moreover, if the product does not 
give the expected service the buyer knows that fact immediately. There 
is no doubt about it as there may be with food and drugs. Thus the 
manufacturer, partially in self -protection, defines his relationship with 
the product and the purchaser during the time in which the product is 
used. Guarantees, warranties, service agreements, and other such 
arrangements become a part of the sales off er. 


Imperfect Standardization 

For the great majority of mechanical products some variation in the 
units produced is unavoidable. While a company will m%ke every effort 
to control raw materials and production activities so that each unit 
manufactured will be perfect in every detail, there is always the possi- 
bility that some part will be defective or that assembly will be at fault. 
Because of these conditions any particular unit may fail to give satis- 
factory performance when it reaches the final consumer. Through no 
fault of his own the expected service from the product cannot be secured 
by the consumer. The responsibility is the manufacturer's, and assur- 
ance needs to be given that he will accept that responsibility when such 
conditions arise. 

Quality Not Determinable by Inspection 

Whether the consumer accepts imperfect product when buying 
depends largely upon his ability to determine quality by inspection. If 
a fault in a product is easily seen or if it appears quickly, perhaps during 
demonstration, then assurance is not needed to a like extent. But for 
many products the consumer has little possibility of finding imperfec- 
tions at the time of purchase. He lacks the requisite training to make 
a revealing inspection of mechanical products. Moreover, the product 
defect is likely to be hidden within the mechanism and thus is not 
subject to inspection. Food products and drugs are usually packaged 
and thus defy immediate inspection. In drugs there may be no possi- 
bility of determining the value of the product other than through 


chemical analysis. Therefore, the consumer must rely on the assertions 
of the manufacturer that the unit of product to be purchased is up to 
the accepted standard. 

Deterioration in Product Prior to Purchase 

Some products deteriorate over time although they are not in use. 
This is probably true of gut in a tennis racket or of rubber in hip boots 
or tires. If products such as these have been on retailers' shelves too 
long, they are likely to be below standard because of that fact. Some 
assurance either as to the time of manufacture or as to performance 
may be neeeded. A well-known example of this in the food line is the 
so-called "dated" coffee. 

Faulty Installation 

Products such as conveying machinery in the field of producers' 
goods and oil furnaces in consumers' goods are usually sold to include 
installation. Thus the manufacturer or his representative takes the 
responsibility for installing the product. The buyer needs assurance 
that installation is properly done and that the seller will make amends 
if later difficulties can be traced to improper installation. 

Lack of Buyer Knowledge 

The buyer needs assurance in many instances because he feels en- 
tirely unable to cope with the product if any difficulty arises. An electric 
furnace offers a good example. If it stops functioning, the average 
householder has litle conception of what may be wrong. Therefore, 
because he recognizes so keenly his own inabilities, he requires assur- 
ance of a continuing interest in his use of the product on the part of 
the manufacturer. This assurance takes the form of readily available 
parts and service when needed by the buyer. 

New and Untried Products 

In the purchase of new and untried products, or old products which 
are being adapted to new uses, the risk taken is materially greater than 
for repeat purchases or for purchases of goods with a standing repu- 
tation. The buyer is likely to demand that the manufacturer share in 
that risk by giving definite assurances. The potential buyer may be 
intrigued by the possibilities of a product, but, in view of the uncer- 
tainties attached to its use, he hesitates to make the necessary financial 
commitment unless recourse is provided by the seller. 


When these conditions are or may be present, the manufacturer is 
likely to give some form of assurance to the buyer at time of purchase. 
However, if the product is particularly subject to abuse by the user, if 
there is little possibility of determining with accuracy whether the fault 
for breakage or other reasons for ineffectiveness lies in the product itself 
or in the manner of use or if the product is highly perishable, assurance 
other than that given by the reputation of the maker is not likely to be 
forthcoming. Compare, for instance, the sealed-in mechanical unit of 
some electric refrigerators with a squash or tennis racket. If the former 
fails to give service during a period of reasonable length after purchase, 
it must be the fault of the manufacturer, for nothing which the user 
can do, short of attempted destruction, will alter the product. The latter 
product may be broken beyond repair in the first few moments of use, 
and still it may have been a perfect product at time of purchase. The 
sealed-in mechanical unit often carries a five-year warranty, whereas no 
formal warranty of any sort is usually given with rackets. 

There are other conditioning factors, likewise, which may affect the 
manufacturers' attitude toward buyer assurance. It may not be the 
practice of the trade to give assurance of a formal nature, and the manu- 
facturer who does so is considered by others to be guilty of questionable 
practice. On the other hand, newer companies which lack general cus- 
tomer acceptance for their products may think it necessary to give a 
definite warranty in order to get initial use, even if the nature of the 
products makes such action questionable. Low grade or quality of an 
article may explain the failure to give the buyer assurance. In other 
cases where the buyer is skilled and the goods are open to inspection, 
no assurance is needed. 


As the buyer needs assurance in purchase — in fact, frequently de- 
mands it — the manufacturer has found it advisable to furnish war- 
ranties, to provide facilities for service work, and to maintain conditions 
which create confidence in the company and its products. The assurance 
given to buyers assumes a great variety of forms. This is to be expected, 
as it is a reflection of the type of product being sold, the size and repu- 
tation of the manufacturer, and the objectives which the manufacturer 
has in mind when decisions regarding representations to the buyers 
are being made. Furthermore, it is one of those factors in selling 


activities which lend themselves to variation. There is always the 
temptation present to outdo competitors in the assurances given and 
to create novel and unusual types which may appeal to potential buyers. 
While these factors have induced variety, another factor, that is, trade- 
association effort, has worked in the opposite direction. For instance, 
through the work of associations there has appeared a noticeable ten- 
dency to standardize express warranties and thus to eliminate their 
influence as a purchasing motive for one manufacturer's product rather 
than for another's. More attention will be given to this tendency later. 
First, it is necessary to classify broadly the assurances which manufac- 
turers give to buyers at time of purchase. 

Company Reputation 

A reputation for producing only products of high quality and for 
standing behind those products is the strongest assurance to purchasers 
which a company can furnish. Examples of this practice appear fre- 
quently. 2 A potential buyer will recognize that a product will surely 
be of good quality if it is produced by a certain manufacturer. In the 
purchase of drug products, for instance, there is little hesitancy if a 
product is made by certain companies or by one of the so-called "ethical" 
manufacturers. While a consumer attitude of this sort is difficult to 
achieve, when once achieved it is an immensely valuable consideration. 
It is largely an outgrowth of effective publicity, word-of -mouth adver- 
tising, and direct personal experience with a company or its products. 

It should not be overlooked that company reputation likewise has 
an indirect bearing on other forms of assurance. When representations 
are made regarding a product in either verbal or written form, their 
cogency in the consumers' mind depends largely on company reputation 
and the means provided to make good on such representations. Al- 
though there are legal means at hand for forcing a company to make 
good, still the cost of legal action in relation to the value of a product 
often makes enforcement of guarantees by the purchaser practically 
prohibitive. For consumers' goods, major dependence is really placed 
on the reputation of the producer — a reputation which he cannot afford 
to jeopardize by refusal to do those things which are necessary to recom- 
pense the consumer when, through no fault of his own, the expected 
utility from a product is not being secured. 

2 Recognition that this fact is fully appreciated is furnished by a statement frequently 
made by E. R. Squibb and Sons in advertising copy. It is as follows: "The Priceless 
Ingredient of Every Product Is the Honor and Integrity of Its Maker." 


Organization for Service 

Whether personal experience with a company or its products has 
been or will be satisfactory often depends upon the effectiveness with 
which dealers who handle a company's products do the service tasks 
assigned to them. The buyer reasons in reference to many durable 
products that the sale is only the beginning of a relationship which may 
extend forward for a number of years. He needs to be reasonably sure 
that the manufacturer will continue to have local representation so that 
some interested party will be immediately available for consultation 
and help if, for some unknown reason, the product which he has pur- 
chased fails to give the expected utility. Immediate availability of parts 
and the ability of local representatives to do repair work effectively 
assume great importance to him. The extent to which these are avail- 
able locally depends almost entirely on the over-all effectiveness of the 
manufacturer's service organization. The work of the local representa- 
tive, in a very real sense, is the end-product of many activities relating 
to service carried forward at the main factory, the assembly plants, and, 
perhaps, by wholesale distributors. 

Implied Warranties 

A warranty is an obligation assumed by a seller. It is based upon 
representations regarding a product made to the buyer in order to give 
him greater assurance in purchase. In legal terms: "A seller's warranty 
in connection with a contract to sell or a sale of goods is an obligation, 
incidental to the transaction, that the seller shall be answerable for 
various matters relating to the product." 3 The scope of warranties will 
vary greatly because in the course of negotiation much or little may be 
stated or promised in relation to a product. Moreover, promises may 
be made verbally or in writing. There may be tacit representations 
regarding a product, as well as verbal or written ones. Other obligations 
are independently imposed by law and are thus present, quite aside 
from the negotiation between the buyer and the seller. A broad dis- 
tinction is usually made between express and implied warranties. The 
former includes warranties derived from express promises and those 
imposed by law because of express representations. The latter includes 
warranties imposed by law because of tacit representations or because 
of broader considerations of public policy or social advantage. 4 

3 Void, Void on Sales (St. Paul: West Pub. Co., 1931), p. 440. 

4 IbU., p. 441. 


It is probable that many businessmen are unconscious of the ex- 
istence of certain implied warranties, for legal action against them on 
the basis of such warranties is relatively infrequent. But the Uniform 
Sales Act, which had been adopted by thirty-four states in 1945, as well 
as by Alaska, Hawaii, and the District of Columbia, lists numerous 
warranties which are implied in any sale. Some of these have to do 
with the right to sell the goods, their freedom from encumbrance, and 
so on. In sale by description or sample there is an implied warranty 
that the goods will correspond with the description furnished and that 
the bulk of the goods will correspond with the sample in quality. Sec- 
tion 15 of the Uniform Sales Act, relative to implied warranties of 
quality is as follows: 6 

Section 15. (Implied Warranties of Quality.) Subject to the provisions 
of this act and of any statute in that behalf, there is no implied warranty or 
condition as to the quality or fitness for any particular purpose of goods sup- 
plied under a contract to sell or a sale, except as follows: 

( 1 ) Where the buyer, expressly or by implication, makes known to the 
seller the particular purpose for which the goods are required, and it appears 
that the buyer relies on the seller's skill or judgment (whether he be the 
grower or manufacturer or not), there is an implied warranty that the goods 
shall be reasonably fit for such purpose. 

(2) Where the goods are bought by description from a seller who deals 
in goods of that description (whether he be the grower or manufacturer or not), 
there is an implied warranty that the goods shall be of merchantable quality. 

( 3 ) If the buyer has examined the goods, there is no implied warranty as 
regards defects which such examination ought to have revealed. 

(4) In the case of a contract to sell or a sale of a specified article under its 
patent or other trade name, there is no implied warranty as to its fitness for any 
particular purpose. 

(5) An implied warranty or condition as to the quality or fitness for a 
particular purpose may be annexed by the usage of trade. 

5 See Bogert and Britton, Cases on Sales (Chicago: Foundation Press, Inc., 1936), 
pp. 1100-1120, for a copy of this Act. 

8 The National Conference of Commissioners on Uniform State Laws and the Ameri- 
can Law Institute have been working jointly since July, 1942, on the production of a 
commercial code. For more than two years prior to that time the National Conference had 
been working on a revision of the Uniform Sales Act. This work was carried forward 
jointly and has been largely completed. It has been approved by a group of advisors repre- 
senting the Commissioners and the Institute, likewise by the Institute itself, as the approval 
of the advisors binds the Institute but not the Commissioners. Final approval has to be 
given by the Executive Committee of the Commissioners. No decision has presumably 
been made as yet as to whether the Act will be separately published or as one of the parts 
of the Code of Commercial Law (See The American Law Institute, Uniform Revised Sales 
Act, Proposed Final Draft No. 1 [Philadelphia: American Law Institute, 1944], pp. 
18-21, 142-51; also Herbert F. Goodrich, "A Modern Commercial Code," Pennsylvania 
Bar Association Quarterly, Vol. XVII, No. 2 [January, 1946], p. 182). 


(6) An express warranty or condition does not negative a warranty or 
condition implied under this act unless inconsistent therewith. 7 

This section of the Act attempts to delineate the obligation of the 
seller and the recourse of the buyer in questions involving suitability of 
product for use and merchantability in distributive outlets. Evidently, in 
a situation in which the buyer confesses ignorance and relies upon the 
seller's skill or judgment there is an implied warranty that the goods are 
suitable for a given purpose. In a case before the Minnesota Supreme 
Court the purchaser of a coal stoker was unable to use the product satis- 
factorily. 8 The case brought out that the purchaser relied entirely upon 
the seller's judgment as to the suitability of the equipment. Thus there 
was an implied warranty that the product could be satisfactorily used 
for a given purpose, and the case was decided in favor of the plaintiff. 
The defendant relied upon item 4 of section 15 of the Uniform Sales 
Act, which states that there is no implied warranty as to a product's 
fitness for any particular purpose if sold under its patent or other trade- 
name. In this instance the Act restates the common-law rule that the 
seller was relieved of the warranty if the buyer "had ordered a 'known, 
described, specific' article, provided that the thing furnished answered 
the description of the article, no matter whether it fitted the buyer's 
purpose or not." 9 Although the restated provision in the Act is fre- 
quently invoked by manufacturers and distributors for their protection, 
and successfully, in this particular instance it was proved that the buyer 
knew nothing of the product, its trade-name, reputation, or the work 
which it was expected to do other than through the defendant. In 
another case a shoe manufacturer brought action against a shoe retailer 
to recover a certain sum allegedly owed on purchases. 10 The retailer had 
attempted to return the greater share of a purchase rather than pay for 
it because users of the shoes said that they wore out in two or three 
weeks. Poor quality was proved to the satisfaction of the court, and the 
case was dismissed. The court held that the shoes were sold under an 
implied warranty that they were free from any defects which would 
render them unmerchantable or which would not be apparent on rea- 
sonable examination of the sample. 

Items 4 and 5 are of considerable protection to the seller. They are 

7 Bogert and Britton, op. cit., p. 1103. 

8 Iron Fireman Coal Stoker Co. v. Brown et Ux., Minn. 399, 234 N.W. 685 (Bogert 
and Britton, op. cit., p. 815 ) . 

9 Bogert and Fink, "Business Practice Regarding Warranties in the Sale of Goods," 
Illinois Law Review, Vol. XXV, No. 4, p. 410. 

10 Laganas Shoe Mfg. Co. v. Sharwood, 173 Minn. 535, 217 N.W. 941 (Bogert and 
Britton, op. cit., p. 864) . 


based upon the assumption that the buyer should know about the suit- 
ability of a product for a particular use or at least that he has been 
enabled to do so. The importance of the qualification in item 3, how- 
ever, is undoubtedly diminishing as goods are becoming more highly 
specialized, more frequently packaged, and thus more difficult for the 
buyer to inspect and evaluate. Defects which examination 'ought to 
have revealed" are very few for many products. For instance, in the 
purchase of proprietary drug items, examination by the prospective 
buyer is of little avail. In the purchase of automobiles, tools, or house- 
hold equipment the typical buyer has little possibility of determining 
inherent value by inspection. This is the situation for both consumers 
and distributive agents, such as wholesalers and retailers, although the 
latter are supposed to be more informed buyers. Thus in the majority 
of cases now there is an implied warranty, even though the buyer has 
examined the goods before purchase. Furthermore, this applies to latent 
defects unknown to seller and buyer alike, as well as to those known 
to the seller but not discovered by the buyer. 

Manufacturers attempt to protect themselves against legal action 
on the basis of implied warranties by disclaimers of various sorts. In 
other words, they attempt to limit their entire responsibility to express 
or promissory warranties which have been carefully drawn and thus 
contain the limitations desired. Both the negative and the affirmative 
features of these will be considered shortly. It should be pointed out, 
however, that manufacturers seldom wish to dodge the responsibility 
for their products imposed by implied warranties. What they wish 
to do is to protect themselves from unjustifiable action of a legal nature. 
Above all, they wish to be involved as infrequently as possible in legal 
action brought against them by purchasers of their products. Whether 
the decision is in their favor or otherwise, they, in effect, lose the case 
as the publicity given is a damaging factor to good will. 

Express Warranties 

First, it should be repeated that express or promissory warranties, 
as they are sometimes called, are not necessarily given in written form. 
Product descriptions, verbal assurances, and even what we usually call 
"sales talk" may be construed as definite representations concerning a 
product, and thus serve as a possible basis for complaint en the part of 
the purchaser and subsequent legal action if adjustments are not made. 
But the effusive claims made for products in conversation between sales- 
men and prospects are not express warranties. The line, however, 


between serious representations in regard to a product and mere out- 
pourings of exaggerated statements such as "extra good product," "by 
far the best in the market" is a most difficult one to draw. 11 When the 
statement made is simply the seller's opinion and there is no particular 
reason for supposing that he possesses exact knowledge, it does not 
constitute a warranty. This is likely to be the situation in selling from 
retail outlets. But a manufacturer's salesmen are expected to know the 
products which they present to distributors and industrial purchasers, 
and their affirmations in relation to those products and what they can 
be expected to do are more likely to be interpreted as express warranties. 
When a product is of low grade or quality, the seller is not likely to 
give an express warranty, especially in written form. This is likewise 
the situation when a product is of a perishable nature or particularly 
subject to abuse. In the latter instance it is difficult to determine 
whether the fault was in the product itself or in the manner of use. 
When the sale of a product is customarily by description or sample, the 
implied warranty obviates the necessity of an express warranty. When 
goods are purchased through inspection by skilled buyers, express war- 
ranties are likewise unnecessary. But for the greater share of 
manufactured products some express warranties are given and quite 
frequently in written form. Although the number of things warrantied 
may be exceedingly numerous, the more usual ones can be placed some- 
where within the following classification. 

A. Absolute Satisfaction. — This warranty is given at times for 
food products and drugs but rarely for durable goods. The remedy pro- 
vided is a refund of the purchase price or perhaps more; recission, or a 
return of the goods with money refunded; replacement or repair. The 
purchaser may be given an option, such as replacement or your money 

B. Compliance with Some Fixed Standard. — The Food, Drug, and 
Cosmetic Act prescribes minimum standards for some products which 
may form the bases for product warranties. Standards are also fixed 
in other legislation, by the National Bureau of Standards, and by gov- 
ernment purchasing agencies. 12 These eventually become widely used 

11 See "Verdict," The Spectator, December 30, 1937, for a digest of cases on sales talk 
and warranties. 

12 See List of Commercial Standards, revised to October 1, 1946 (Letter Circular LC 
836) (Washington: U.S. Department of Commerce, National Bureau of Standards); 
Federal Specifications: Federal Standard Stock Catalog, November, 1945 (Washington: 
1946); F. W. Reynolds, "Voluntary Standards Adopted by the Trade," Domestic Com- 
merce (Washington: U.S. Department of Commerce), Vol. XXXIV, No. 11 (Novem- 
ber, 1946), p. 3. 


as standards of quality and thus of warranties. Standards are estab- 
lished by the Bureau of Standards upon the request of trade-associations 
or responsible producers or distributors. Compliance is entirely volun- 
tary, but the standards are, nevertheless, widely used, and the fact of 
compliance is often noted by specific reference to the appropriate com- 
mercial-standard number on the product. The manufacturer thereby 
warrants that his product meets the requirements of this standard. 
The Bureau of Standards has developed a certification plan whereby 
the right is given to manufacturers to state that fact. 13 Lists of "willing 
to certify" manufacturers are mailed regularly to practically all known 
governmental purchasing agencies and to other industries, as well as to 
the public upon request. Trade-associations, such as the National Board 
of Fire Underwriters and the Illuminating Engineering Society, set 
standards for products which may become the bases for warranties. 

C. Approval by Authority. — The claim through the use of a seal 
that a product has been "Accepted" by the American Medical Asso- 
ciation or that a product has been "Certified" by the United States Test- 
ing Company, Incorporated, is an express warranty of considerable 
significance to the purchaser. Whether a product is, in fact, warrantied 
by the Association or the Testing Company or by the manufacturer is 
unclear. There apparently is much doubt as to the extent of responsibil- 
ity assumed by publishing companies, testing laboratories, and profes- 
sional associations which provide seals of approval for use by manu- 
facturers or processors. However, in practice, either the giver or the 
user of the seal of approval reimburses the purchaser in some manner if 
a product is faulty and thus fails to provide the expected utility. Often it 
is difficult to determine whether the product or the purchaser is at fault. 
However, at this point it is sufficient to note that a warranty of this 
character differs materially from the warranty discussed above, inas- 
much as there usually are no definite, published standards or specifica- 
tions with which the manufacturer has signified his compliance. 

D. Performance. — Warranties in relation to performance may be 
given in terms of time periods, use periods otherwise measured, or 
capacity in use. For instance, the written warranty which is standard for 
all members of the Automobile Manufacturers Association covers the 

13 See P. G. Agnew and J. W. McNair, "Certification and Labeling Activities in 60 
Commodity Fields," ASA Bulletin, Vol. Ill, No. 1, pp. 1-23. For a description of this 
plan see The Certification Plan: Its Significance, Scope, and Application to Selected Federal 
Specifications and Commercial Standards" (Letter Circular LC-559, July 6, 1939), pre- 
pared by the Division of Codes and Specifications (Washington: National Bureau of 
Standards, Department of Commerce). 


first 90 days of ownership or the first 4,000 miles of use. In other cases 
there is no unit easily available to measure use, and thus a time unit is 
necessarily adopted. For machinery and equipment, warranties are 
commonly made which state that a product under given conditions will 
do a certain number of operations in a given period. Many performance 
warranties, particularly in consumers' goods, have been superseded by 
those which claim nothing but mechanical perfection at time of sale. 

E. Mechanical Perfection. — This is a very commonly used basis 
for warranties both for consumers' and for producers' goods. Often the 

warranty will read as follows, "We warrant every new to be free 

from defects in material and workmanship under normal use and 

service " When the company which assembles the unit does not 

make all parts, the proviso "made by us" is likely to be inserted. The 
only remedy usually provided is replacement of the defective part with- 
out cost to the owner. Other warranties of this same general type may 
carry a stipulation to the effect that the goods were inspected prior to 
shipment or were in good condition when shipped. 

F. Freedom from Harmful or Disadvantageous Results in Use. — 
When it is recognized that a product frequently develops unfortunate 
defects in use or after use over a given period, warranties may be given 
in regard to very specific things. An example of this is the warranty 
given by a manufacturer of monuments against splitting or cracking 
under weather. It might be termed a performance warranty on specific 
matters. It is likely to be used by a manufacturer who has perfected a 
product which is not subject to common defects which are recognized 
by many potential consumers. 


In giving these express warranties, either verbal or written, the 
producer has one or two general objectives in mind. One might be 
termed a "promotional" objective, the other a "protective" one. When 
a manufacturer offers a product under the warranty of "full satisfaction 
or your money back," his chief objective is to get initial trial of a prod- 
uct. In order to do so, he has given an unlimited warranty which entirely 
eliminates risk for the buyer. This lack of risk is a cogent sales argu- 
ment and is so used. In contrast, another manufacturer may definitely 
limit the warranty which he gives to mechanical perfection of the 
product. The buyer's redress in such an instance may onlv be the 
replacement of defective parts. The warranty in this case will not be 


used extensively, if at all, in negotiation. Rather, it is an instrument 
primarily designed for the protection of the seller instead of the assur- 
ance of the buyer. 

These two objectives of promotion and protection are not mutually 
exclusive. There is an element of protection in a warranty designed for 
promotional purposes and likewise an element of promotion in one 
designed for protection. The unlimited promotional warranty protects 
as well as creates good will. Its use might also protect the position of a 
company, if competitors were making serious inroads into sales volume. 
The protective warranty may be used to influence the prospective buyer 
during negotiation. At least to the uninitiated, it is something tangible 
in which the company gives certain assurances. The fact that it may 
withdraw other warranties, perhaps some expressed during negotiation 
by the individual with whom the buyer deals directly or implied war- 
ranties under the common law or the Uniform Sales Act, need not be 
mentioned. While warranties with numerous disclaimers may have 
some promotional influence, their more important excuse for being is 
to protect the seller against unreasonable claims for redress on the part 
of the buyer. 

Warranties which assure absolute satisfaction, approval by author- 
ity, and freedom from harmful or disadvantageous results are used 
almost entirely with promotional objectives in mind. Those which 
deal with performance and compliance with fixed standards are largely 
promotional, but they do have protective elements likewise. The war- 
ranty of mechanical perfection is designed with the objective of protec- 
tion uppermost, and that of promotion in a secondary position. In 
other words, negative aspects of the warranty dominate the instrument 
rather than those of a positive nature. First, we shall consider the use 
of the promotional type. 

Promotional Warranties 

Warranties which involve a refund of the purchase price or a 
replacement of merchandise are exceedingly strong and easily under- 
stood sales arguments. Furthermore, they dramatize well and thus may 
be used as the central theme in an entire sales program. Because they 
eliminate the greater share of the risk in purchase, people may be in- 
duced to try a product, and, if satisfied, they may become regular users. 
Although such warranties involve a substantial cost, still the cost of 
securing new users in this way may be less than through advertising, 
canvassing, free samples, or other means. The cost through refunds 


or replacements is usually less than deductive reasoning would suggest. 
In 1932 the Hormel Packing Company offered "double your money 
back, if you do not say this is the best vegetable soup you ever bought." 14 
Only one of each ten thousand purchasers asked for the refund. In 
order to realize upon the warranty, the consumer was required to take 
the label on the can, write upon it the reason for not liking the soup, 
and mail it back to the company. For small articles such as this on 
which these unlimited warranties are usually made, the bother involved 
in securing the refund or replacement minimizes the number of pur- 
chasers who take action. The warranty is often so worded and the 
procedures stipulated for getting refunds so burdensome that the con- 
sumer, even though he is dissatified with the product, simply lets the 
matter pass. At least unjust demands are held to a minimum by such 
tactics on the part of the manufacturer. Whether it is good policy to 
surround the refund or replacement privilege with much red tape is 
open to question. In the manufacturers' effort to protect himself against 
illegitimate demand and to reduce the cost involved in the warranty 
program he may create ill will both on the part of the dissatisfied user 
and on the part of the dealer who served him. 

Frequently the promotional warranty is used to secure dealer as 
well as consumer good will. Such was the objective of the Agfa Ansco 
Corporation, which issued a so-called guarantee bond with each roll 
of Agfa Plenachrome roll film. The warranty was as follows: 

This Agfa film has been manufactured under very exacting tests, and so 
sure are we of the user's satisfaction that it is sold with the following guarantee: 
If the results from this film do not suit you, np matter whose may be the fault, 
fill in your name, etc., on the reverse side of this guarantee and mail to Agfa 
Ansco Corporation, Binghamton, N.Y., with the complete set of negatives, upon 
receipt of which we will send you postpaid a new roll free of charge, together 
with suggestions of real help to you in obtaining good pictures with your 
camera. 15 

Dealers were benefited by this warranty, as they were relieved of 
the burden of adjusting complaints. Furthermore, they were given 
additional work in developing films. With the replacement film which 
was sent to the customer, the company sent detailed instructions and 
advice in regard to the taking of pictures. This educational effort in- 
creased the demand for film, and this reacted to the benefit of the 

14 B. F. Berfield, "Your Money Back," Printers' Ink, Vol. CLXXVI, No. 7, p. 32. 

15 Dr. Ernst Schwarz, "Making a Guarantee Do Double Duty," Executive Service 
Bulletin, Vol. XV, No. 9 (New York: Policyholders Service Bureau, Metropolitan Life 
Insurance Co.). 


dealer. A liberal warranty in this instance made possible the direction 
of educational effort at the points where it was most needed. It pro- 
duced a large measure of good will at a reasonable cost. 

All promotional warranties are not so capable of justification as the 
one just discussed. When they are given on higher-value products, the 
value may be such as to permit returns or claims despite the bother and 
expense involved. Some warranties apparently have the effect of in- 
viting the return of merchandise at the least provocation. When unlim- 
ited warranties are given on higher-value products, illegitimate claims 
are always forthcoming, and they are most difficult to adjust. If the 
warranty appears to favor the buyer too greatly, it may have a negative 
effect, the supposition being that there must be something wrong with 
the product if such great inducements to purchase have to be given. 
Moreover, the use of warranties for promotional purposes is a sales 
practice which can be carried to absurd lengths, each firm attempting 
to outdo competitors. This was surely the case in earlier years on time 
warranties for automobile tires, watch cases, alarm clocks, and other 
articles. But such questionable practices have been largely discontinued 
through group action. 

Some people assert that, because of unwise use and the presence of 
a less gullible public than formerly, the promotional value of warran- 
ties has decreased. While there may be some truth to this assertion, 
there is likewise some evidence to the contrary. In a sellers' market as 
at present ( 1947) there are relatively few announcements of new "full 
satisfaction" warranties, but there was a rash of them in the middle 
years of the 1930-39 decade. Perhaps they appear in cycles and become 
more common in periods of depression. But any such cogent sales argu- 
ment as they afford will always have some users. 16 Those warranties 
which claim compliance with fixed standards are not less prevalent than 
formerly, nor do they appear to be less effective. In fact, their number 

16 The mail-order companies continue to use absolute warranties. For instance, the 
Spring and Summer Catalogue (1945) of Montgomery Ward & Co., Inc., states as fol- 
lows: "WARDS GUARANTEE — If for any reason you are not entirely satisfied with any 
purchase made at Wards, you may return the merchandise. We will promptly refund all 
you paid including transportation charges paid by you. Or, if you prefer, we will exchange 

it for something that does satisfy you When you trade at Wards, you can buy with 

absolute confidence because you are protected by our 73-year-old Guarantee of Satisfaction. 
We are sincere in our desire to serve you and are not content unless you are entirely 
pleased with your purchases. If at any time something should be wrong, do not hesitate 
to write and let us know. We will welcome the opportunity to make it right, since it is 
only by serving you well that we can expect your continued patronage. Our Guarantee 
means exactly what it says and you are the sole judge — because it is you that must be 
satisfied" (p. 841). 


should increase as the result of the work by many groups, governmental 
and otherwise, to provide standards for use by manufacturers. 

Approval by authority as a promotional weapon may have greater 
use than in the past through an increase in the number of organizations 
established to aid the consumer in purchasing and to aid the manufac- 
turer in product testing. But there are certain factors which may limit 
its use, for instance, approval by authority may be adversely affected by 
the recent flood of testimonial advertising. These purported statements 
of people in the public eye might be considered as statements of ap- 
proval by "authority," but they make no pretense of being the result 
of objective evaluation of products. While testimonial advertising by 
society leaders, by sports champions, and by motion-picture stars is 
something quite different from an indication of approval of a product 
by an unbiased and continuing organization, nevertheless, the public is 
frequently not discerning and might not recognize that approval in the 
first instance is based only upon preference at the most, whereas in the 
second instance it may be based upon scientific product testing. Still, 
the extent to which consumers would be influenced by testimonial 
advertising might be substantially less than to indications of approval 
by testing laboratories or professional associations. It might even be 
argued that an overdose of testimonial advertising would stimulate the 
use of promotional warranties based upon product testing rather than 
having the opposite effect. 

The position taken by the Federal Trade Commission toward the 
work of organizations which test products and then recommend or 
certify them to consumers through use of seals may constitute a restrain- 
ing influence on further use. As examples, the American Medical 
Association, the American Dental Association, and such magazines as 
Good Housekeeping and the Parents' Magazine have seals which they 
permit manufacturers to use which indicate that a product is accepted, 
recommended, commended, or, perhaps, guaranteed by them. The 
attitude of the Federal Trade Commission as illustrated by the action 
taken against Good Housekeeping and its "Tested and Approved" seal 
is a case in point. 1 ' The commission was skeptical of the sweeping 
guarantees which it felt the Good Housekeeping seals implied. Evi- 
dence was presented to indicate that recommendations were not always 
based upon adequate testing of products and, therefore, that the seals 

17 Federal Trade Commission, In the Matter of Heart Magazines , Inc., Docket No. 
3872, Complaint, August 17, 1939; Findings as to the Facts and Conclusion, and Order 
To Cease and Desist, May 13, 1941. 


might have undue influence on the purchases of consumers. Specifically, 
Good Housekeeping was ordered to cease and desist from "Using, or 
authorizing, or allowing others to use, seals .... unless and until the 
product concerning which such representation is made has, in fact, been 

adequately and thoroughly tested " 1S Good Housekeeping was also 

ordered to cease and desist from "Representing, directly or by implica- 
tion, that any product .... is guaranteed by respondent, unless such 
guarantee is without limitation, or if limited, unless all limitations upon 
such guarantee are clearly, conspicuously and explicitly stated in imme- 
diate conjunction with all such representations of guarantee." 19 Nothing 
in the order prohibited the use of the words "Tested and Approved" or 
"Recommended." The two seals using these words were, nevertheless, 
discontinued in 1941, at least partly on the basis that wartime product 
changes in many consumers' goods too greatly complicated the situa- 
tion and increased the work of product testing. Good Housekeeping 
has not as yet reinstated these seals but is still using its seal which guar- 
antees "Replacement or Refund of Money." The obligation of Good 
Housekeeping is now specifically stated as follows; "Each product and 
service advertised in this issue of Good Housekeeping is guaranteed to 
this extent: If it is defective or if not as advertised herein, it will, upon 
request and verification of your complaint, be replaced or your money 
refunded." 20 

The action taken by the Federal Trade Commission against Good 
Housekeeping has not greatly affected the use of seals as a promotional 
device. This action may have improved the situation by inducing a 
greater measure of product testing, thereby making the statements in 
seals more authoritative than previously. At least the Commission 
brought forcibly to the attention of manufacturers and many consumers 
the fact that permission to use seals in certain instances may not be 
preceded by adequate product testing and, therefore, that they may be 
of little significance as an indication of a product's real merit. Perhaps 

18 Order To Cease and Desist, pp. 2-3. 

19 Ibid. 

20 Good Housekeeping, March, 1946, p 6. The action taken by the Federal Trade 
Commission against Good Housekeeping affected the use of other seals likewise, for in- 
stance, the seal of the American Medical Association. The Association largely discontinued 
the use of its seals for food products other than those of an unusual character for the 
feeding of children or invalids. At present its seal is used almost entirely in advertisements 
in medical publications rather than those of a general character such as the Saturday 
Evening Post. One other publication changed its seal to read "Commended" instead of 
"Recommended," probably with the idea in mind that the first term had less definite impli- 
cations of warranty. 


the action of the Commission clarified somewhat the question of the 
degree of responsibility assumed in the use of seals and by whom. 
However, on this point there is much confusion. In most instances it 
is unclear as to whether the manufacturer or the association, publica- 
tion, or laboratory which furnishes the seal guarantees the product on 
which the seal is used. It would appear that Good Housekeeping itself 
guarantees the product on which its seal is used. In contrast, the seal 
of acceptance by the Council on Pharmacy and Chemistry of the Amer- 
ican Medical Association apparently does not constitute a warranty on 
the part of the Association. At least, such a responsibility would, in all 
probability, be disclaimed by the Association. On drug products the 
seal indicates only that a product meets those requirements in testing 
which permits its inclusion in the Association's publication, New and 
Non-official Remedies. 21 

As a matter of policy any business concern which uses or contem- 
plates the use of seals of approval should assure itself that the seals 
have significance in the eyes of consumers and that they will, therefore, 
serve a definite promotional objective. In the long run, confidence in 
seals of approval can be achieved only by effective product testing. 
Doubts are not likely to arise as to whether seals have significance if 
they are furnished by government agencies or perhaps by professional 
associations. But much greater doubt is likely in reference to those fur- 
nished by publications or by testing laboratories. Nevertheless, seals 
furnished by commercial laboratories such as the United States Testing 
Company, Incorporated, or by publications such as Good Housekeeping 
may gain and fully merit public confidence and thus provide a strong 
promotional force for the concern which is permitted to use them for 
its products. 22 

In summary, the use of promotional warranties whether of absolute 
satisfaction or of refund of purchase price, compliance with some fixed 
standard, or approval by authority is like any other promotional method 
in that the warranties may be used intelligently or otherwise. Such war- 
ranties may or may not be effective in inducing purchase. Furthermore, 
they have certain costs, including those for administration, replace- 
ments, or refunds. They may also have intangible costs in customer 

21 American Medical Association, New and Non-official Remedies ( 1945) . The "Rules 
Governing the Admission of Proprietary Articles to This Publication," are given on pp. 
17-19. The "Rules Governing the Use of the Seal of Acceptance" will be found on pp. 

22 For a description of the plan followed in regard to the use of its "Seal of Quality" 
see Certified Merchandise Plan (Hoboken, N.J.: United States Testing Co., Inc.). 


dissatisfaction if the warranties are not administered effectively. Costs 
can be determined with some degree of accuracy, and their effect in 
producing sales volume can at least be estimated. Management has a 
twofold problem of analysis, first, to measure the relative value of 
different types of promotional warranty in producing sales volume and, 
second, to determine whether warranties are a more effective instrument 
in producing sales volume than are other methods of promotion in 
relation to their respective costs. 

Protective Warranties 

It has previously been stated that express warranties of the protec- 
tive type are primarily designed for the protection of the seller rather 
than for the assurance of the buyer. Again it should be emphasized that 
they are not exclusively so. There are likely to be some clauses included 
which would serve to assure the initial purchaser as to the quality of 
the product and the intention of the manufacturer to do something 
constructive if it fails in performance. Yet the chief purpose of many 
warranties is to protect the manufacturer and distributor against the 
unreasonable demands of the purchaser. As the dealer more frequently 
than otherwise sides with the buyer rather than with the manufacturer 
in cases of dispute over performance or mechanical perfection of a 
product, the warranty, in fact, protects the manufacturer from the 
dealer as well as from the user. Essentially it is an instrument which 
explicitly defines and thus delimits the responsibility which the seller 
assumes in regard to a product subsequent to sale. Under common law 
he is forced to accept some responsibility, for there are always implied 
warranties. Furthermore, and in part because of the inability of the 
purchaser to determine the quality of the product by inspection, the 
manufacturer makes many representations in regard to the product and 
by that fact assumes additional responsibility. Thus caveat vendor, "let 
the seller beware," has in a measure replaced caveat emptor, i.e., "let the 
buyer beware." Simply as a matter of effective business policy the manu- 
facturer is willing to accept this responsibility. It is to his interest to 
see that users get the utility from the product which they can reasonably 
expect. But he wishes to accept the responsibility on his own prescribed 
terms, which will protect him against unreasonable demands. This he 
can do by careful definition and by the use of disclaimers which may be 
defined as "stipulated limitations on the responsibility assumed." 23 
These will be explained through a specific example. 

23 For a discussion of disclaimers in express warranties see Void, op. cit., pp. 467-70. 


The Motor Vehicle Warranty prepared for its members by the 
Automobile Manufacturers Association furnishes an excellent illus- 
tration of a standard warranty. Warranties were prepared by the Asso- 
ciation for both passenger cars and commercial vehicles. While there 
is no agreement by the members to use them to the exclusion of other 
warranties, they are widely used by the industry. The warranty for 
commercial vehicles is as follows: 

This is to certify that we, The Motor Truck Company, War- 
rant each new commercial motor vehicle manufactured by us to be free from 
defects in material and workmanship under normal use and service, our obliga- 
tion under this warranty being limited to making good at our factory any part 
or parts thereof which shall be returned to us with transportation charges 
prepaid, and which our examination shall disclose to our satisfaction to have 
been thus defective provided that such part or parts shall be so returned to us 
not later than ninety (90) days after delivery of such vehicle to the original 
purchaser, and that at the time of such return, the said vehicle shall not have 
been operated in excess of five thousand (5,000) miles. This warranty is ex- 
pressly in lieu of all other warranties expressed or implied and of all other 
obligations or liabilities on our part, and we neither assume nor authorize any 
other person to assume for us any other liability in connection with the sale 
of our vehicles. 

This warranty shall not apply to any vehicle which shall have been repaired 
or altered outside of our factory in any way so as, in our judgment, to affect its 
stability, or reliability nor which has been subject to misuse, negligence or 
accident, nor to any commercial vehicle made by us which shall have been oper- 
ated at a speed exceeding the factory rated speed, or loaded beyond the factory 
rated load, capacity. 

We make no warranty whatever in respect to tires, rims, ignition apparatus, 
horns or other signaling devices, starting devices, generators, batteries, speedom- 
eters or other trade accessories inasmuch as they are usually warranted separately 
by their respective manufacturers. 

In Witness Whereof, we have caused this Warranty to be signed by our 
duly authorized officers. 

This warranty is similar to that used for passenger cars with one 
important exception, i.e., the passenger car warranty covers all acces- 
sories other than tires. 24 With this exception, the commercial vehicle 
warranty is typical of those given by most manufacturers of electric re- 

24 The question of whether the warranty of automobile and /or truck manufacturers 
should include accessories has been argued frequently. While it is true as stated that 
accessories are usually warranted separately by their respective manufacturers, nevertheless, 
the purchaser of a vehicle has no contractual relation with the accessory manufacturer nor 
could he hold the manufacturer responsible if his product failed to give satisfactory per- 
formance. The buyer contracted for a unit and not for a group of parts, and therefore it 
seems logical that an automobile company should extend its warranty to the complete 
product as sold to the purchaser. 


frigerators, washing machines, vacuum cleaners, scales, oil burners, and 
other relatively high-value, merchanical products which are used in 
homes and as equipment by business concerns. Variations between war- 
ranties on different products are present and would be expected in stipu- 
lations regarding time or use limits and in the remedies provided for in 
case the warranty is breached. Products differ too greatly for uniformity 
in these respects, but on other points there is marked similarity. Among 
the points to observe by way of illustration in the automobile warranty 
are the following: (1) It is largely protective in nature. It includes a 
disclaimer of all other warranties expressed or implied either by dealers 
or by the manufacturer and later reaffirms and broadens the initial 
statement. The manufacturer, above all else, wants to avoid litigation, 
and he can largely do so, for "if the terms of the contract are appro- 
priately drawn they may, in the absence of statutory limitations on the 
power to contract, effectually exclude any warranties." 25 Thus legally 
the manufacturer can limit his responsibility by use of the warranty. 
(2) The warranty does not apply unless the product has had "normal 
use or service" or if it "has been subject to abuse, negligence, or acci- 
dent." Furthermore, ( 3 ) the manufacturer reserves the right to deter- 
mine whether the product is really defective and thus subject to the 
remedies provided for. The seller is thus, in effect, the arbiter of any 
dispute between himself and the buyer. These clauses serve as effective 
protection against unreasonable demands by the buyer where the fault 
lies not in the product itself but in the manner of use. (4) The war- 
ranty is, in fact, one of mechanical perfection and not one of time or 
performance. Stipulations in regard to time and performance are in- 
cluded, but these are expected only to cover that length of time or that 
extent of use during which original imperfections are likely to appear. 
Obviously, this warranty provision differs from one which warrants that 
a tire will give 20,000 miles of service. This is approximately the mini- 
mum length of service which reasonably can be expected, whereas in 
the case of an automobile, 4,000 miles or 90 days of use is merely the 
beginning. The shift from time and performance warranties to those 
which assure that none of the parts of a manufactured product will 
within a limited time prove to be defective in material or workmanship 
has been a clearly discernible tendency during recent years. ( 5 ) The 
only remedy provided for is replacement of defective parts. It does not 
include the labor necessary to incorporate the parts into the final assem- 
bly, nor does it include tires. The Uniform Sales Act remedy of 
25 Void, op. cit., p. 469. 


rescission, that is, return of goods with money refunded, and those of 
recoupement, counterclaim, and action for damages are denied the pur- 
chaser by disclaimers. The latter remedies are not, nor would they be, 
mentioned in warranties because no seller would propose possible bases 
for litigation to a prospective buyer. 

The degree of uniformity in warranties is largely the result of con- 
scious effort to standardize these instruments. As new products of a 
mechanical type were being introduced rapidly and as new producers 
appeared of older product types, there was a large measure of divergence 
in warranties even for like products. This caused confusion and what 
manufacturers no doubt considered needless competition. Competition 
in relation to warranties could and did get out of hand easily. Each 
manufacturer was prone to exceed the terms given in the warranties 
issued by competitors. As a result of such competitive moves, the time 
and performance limits set were often entirely too high and invited 
unreasonable demands on the part of purchasers. They also may have 
injured the reputation of certain products in the eyes of discriminating 
buyers. Furthermore, it is doubtful whether many manufacturers accu- 
mulated accurate data on the costs incurred in meeting the claims of 
users when the warranties were breached, but these costs were recog- 
nized to be substantial. Because of these conditions, trade-associations 
found the standardization of warranties a desirable field for effort, and 
formal competition of this type among manufacturers of certain prod- 
ucts practically ceased. 

It should be recognized, however, that, as warranties are made more 
protective, they lose their promotional force. A full understanding of 
most protective warranties would clearly discourage the potential pur- 
chaser rather than serve as a favorable influence in negotiation with 
the seller. Groups of manufacturers through association effort may 
overshoot the mark and protect themselves so fully that a loophole is 
created for competition to enter through the use of warranties which 
appear more generous and offer the consumer greater assurance in pur- 
chase. 26 

26 In 1942 many tire manufacturers issued warranties which would be characterized as 
protective. They were full of "exceptions." For instance, tires on one car were warranted 
against all accidental injuries except punctures, running flat, damage by wrecks, tire chain, 
obstruction on vehicle, use of blowout patch, fire, and theft for twelve months from date 
of purchase, if tires were registered under a special warranty. In contrast, the mail-order 
houses gave much more generous warranties and featured them in sale. One mail-order 
company warranted its tire for 24,000 miles of service or for two years of use, and the 
"exceptions" introduced were relatively few and unimportant. Perhaps the contrast be- 
tween the provisions of these two warranties may partially account for the success of the 
mail-order company in making tire sales. 


Informal competition, that which finds expression in particularly 
generous action on the part of the seller toward the buyer when the 
latter considers that the warranty is breached, still continues. In other 
words, the warranty actually sets a lotver limit of redress in case of diffi- 
culty with a product, but not what the user may finally receive. The 
desire for continued good will may induce the manufacturer or dealer 
to exceed the prescribed limits appreciably. Business experience has 
amply demonstrated that it pays to be at least reasonably liberal with 
disgruntled users who otherwise may influence adversely a wide circle 
of potential purchasers. Honesty in dealing with users under warranties, 
dispatch in the settlement of claims, reasonably liberal treatment, and 
other actions which tend to preserve amicable relations between a com- 
pany and the users of its products are essential elements of good busi- 
ness policy. Confidence in a company, its policies, and its products, is 
an immensely valuable business asset. 


The word "service" as used by businessmen has many connotations. 
Particular attention to a rush order is considered by the buyer to be 
good service. The word may be used in connection with the delivery 
of merchandise, information on retail selling, frequency of solicitation*, 
the maintenance of adequate inventories, the privilege of returning 
merchandise, and so on. On the other hand, it may be used in connec- 
tion with plans and activities whereby either the use of the product or 
the product itself is altered so that the consumer may secure the ex- 
pected utility from it. The first type may be termed " nontechnical" 
service. It is not concerned with the product itself. Rather, it is a 
matter of intelligent and purposeful co-operation on other matters with 
the dealer, or perhaps with the consumer. Service of the second type is 
of a "technical" nature. When the user of a product, because of his 
lack of technical knowledge, cannot get the expected utility from it, the 
manufacturer or his representative must be prepared to intervene and 
aid him to do so. 

In the marketing of industrial products the term "application sell- 
ing" is frequently used. It has been defined as "creative sales engi- 
neering" and is concerned with adaptation of the product to the buyer's 
needs. In the term itself there is the implicit assumption that the thing 
actually being sold is a service to the buyer and not physical material 
in the form of machines or supplies. Thus the sales approach is likely 
to be couched in terms of what the product will do for the buyer and 


the amount which will be saved and thus available for increased profits 
through its use. In fact, industrial machines are frequently sold with a 
guarantee of performance, and thus the responsibility for results is 
placed squarely on the shoulders of the machine manufacturer. As he is 
selling service, it is his problem to adapt the product to the buyer's 
needs and, through continued contact, to see to it that the buyer gets 
the service which he has purchased. Thus the problem of service enters 
as an essential part of the manufacturer's activities. 

Information as to the nature of technical service work, its develop- 
ment in recent years, and a comprehension of the administrative prob- 
lems which have emerged can be secured in a realistic way from a 
statement which was quoted in a bulletin of the American Management 
Association. 27 This statement was made by a manufacturer of turret 
lathes — a type of machine which is usually sold with special tools and 
attachments. It is as follows: 

Free service has gone much farther than we would like, by gradual degrees 
and over a period of the last 10 or 12 years. It has been so gradual that until 

very recent years, we have hardly realized what it meant to us in expense 

In order to give you a little background, I want to describe briefly the process 
we follow in making a sale. First, our salesman digs up a prospect. That is to 
say, he finds, in a customer's plant, room for a new or better machine to do some 
particular job. While the salesman himself .... is a trained engineer capable 
of discussing the job intelligently from a production standpoint, .... never- 
theless, in many cases we are obliged to send from our main office an expert 
production engineer who secures all of the facts concerning the present produc- 
tion, lays out a new tooling arrangement, recommends the proper machine, 
figures the customer's new production, and then in not a few cases is obliged to 
figure the return to the customer on the new investment required to purchase 
the new equipment. In many cases in the last five years this process, which 
began as a simple recommendation, has evolved into an exhaustive survey of 
the customer's entire facilities, occupying in certain cases many days of time of 
a highly paid, highly trained engineer. Such "surveys," I might say, involve very 
considerable cost to us. They are returned to the customer in nicely bound type- 
written reports covering from a few to many pages, and accompanied by blue 
prints of specially prepared sketches, computed data, etc. 

From there on, the process of securing an order is by means of emphasis 
applied by the salesman to the engineering, financial, or whatever other phase 
of the proposition appears to make the greatest appeal to the customer. All of 
the above you will say is only a highly developed process of selling, but, never- 

27 J. H. MacLeod, The Trend toward Expansion of Free Service in Industrial Sales 
("Industrial Marketing Series," No. 22 [New York: American Management Association, 
1933]), p. 6. 


thelqss, you must admit it is a very extended form of service that we were not 
obliged to furnish if we go back in thought ten or fifteen years. 

The next form of service that is bothersome to us is': having secured an 
order, we build up the material composed of a standard machine as a rule, and 
specially designed tools. All of this material has to be built against a guarantee 

of production. In the old days, the customer would use his own judgment 

Today the entire burden of performance is thrown on us. After we have made 
our production tests as best we can with a small amount of material on our own 
test floor, the machine is shipped and installed in the customer's plant, and fol- 
lowed by our demonstrator. There comes the greatest item of expense in this 
division of free service. 

Our demonstrator is, as a rule, an unusually well trained operator and well 
informed shop man. He goes at our expense to the customer's plant and remains 
as long as it is necessary to secure the production originally guaranteed on the 
sales proposal. Sometimes it involves taking the customer's green operator and 
breaking him in, training him to become an expert turret lathe operator. Again 
one might say that this process is all in line with the perfect mania for service 
that has developed over the past few years in selling everything from groceries 
to locomotives. Nevertheless, it is one of the items that piles up a tremendous 
service charge. 

The third source of service cost is the one that is most serious and the one 
which we feel is most unjust. In addition to the demonstrating work described 
above, our demonstrating crew, in many cases our salesmen, and in still further 
cases, service men sent out from our Works Production Department are called 
upon to service our machines whenever they meet with a mishap, no matter 
whose fault the failure may be. All products are sold with a guarantee against 
faulty material and workmanship, and against the above-mentioned production 
estimate. Having performed all of the acts to which we have agreed in the sales 
transaction, it has come to be that we are called upon six months or a year 
later to send our man to discover what is wrong and correct the difficulty, and 
from six months up to a period covering several years from the time the ma- 
chine is installed and in satisfactory operation, we have some of the most 
ridiculous cases you can imagine. 

This is a realistic picture of the service problem in the 1930's, as 
seen by one sales executive. Although there may be a small measure of 
exaggeration in its implications, still it is a reasonably faithful portrayal 
of the attitude of many manufacturers toward service at that time, 
particularly of those who were struggling with its many problems. 
Some of the conditions which create specific problems, such, for instance, 
as the excessive cost of service and its abuse by potential customers were 
mentioned. With this discussion in mind we can proceed to a more 
formal classification of service work. The basis of this classification is 
the objective to be achieved. It will be observed, likewise, that it follows 
a definite time sequence. The classification is as follows: 


Survey Work 

The objective in this instance is to determine the needs of the buyer 
in regard to a certain type of product. For instance, prior to the pur- 
chase of turret lathes, it was necessary to make a detailed study of the 
particular needs for such a product within the buyer's plant. As both 
plants and other conditions of use differ markedly, the problem of each 
prospective buyer must be studied carefully, and then the equipment 
must be adapted to solve the problems involved. Survey work is the 
merchandising activity for technical products. It is frequently called 
"sales" service, in contrast to other types, which are designated as 
"product" service. 


The objective of installation is to see that a product is properly 
placed and ready for use by the buyer. For large special-order equip- 
ment, this is of particular importance. A conveying system furnishes an 
excellent example. If it is properly installed, it will operate with little 
difficulty over extended periods of time, but with faulty installation a 
system will give constant trouble. Frequently, the manufacturer prefers 
to sell such equipment completely installed. 


The objective of demonstration is to train the buyer or his em- 
ployees in the use of a product. This is likely to take place after installa- 
tion. Usually buyers wish to see what a product will do by way of 
performance prior to purchase. But demonstration to induce purchase 
should not be considered a part of service work unless the information 
given at that time contributes to more effective product use later. 


The objective of afterservice is to aid the buyer if the product fails 
in performance. During the entire productive life of some products 
there is need for the manufacturer and the user to keep in close contact. 
Both repair parts and expert repairmen must be made immediately 
available when needed, otherwise there may be forced cessation of pro- 
duction or, in the field of consumers' goods, of performance. There is 
no better or more familiar example of this need than for an automobile. 
Continuously available service is largely taken for granted, but it is the 
outgrowth of long experience and carefully formulated plans. The 


importance of such service to the user need not be stressed. When 
through some administrative breakdown service is not effective, its 
importance is soon manifest. 

From this discussion it should be evident that service work goes 
much further than that provided for in warranties. Survey work pre- 
cedes sale and much afterservice work is done subsequent to the ter- 
mination of the time limitation stipulated in the warranty. The service 
work done as the direct outgrowth of the fact that users demand it 
under warranties is but a small part of the total. The manufacturer's 
need to create and maintain good will carries him much further by way 
of service than does the legal responsibility he assumes through war- 


Service work and warranties are alike in that the objectives of the 
manufacturer are in part promotional, in part protective. But the 
protective feature differs markedly. In the use of warranties the manu- 
facturer attempts to protect himself against unreasonable demands on 
the part of the purchaser. Through provisions for service work he pro- 
tects himself primarily against dissatisfaction on the part of the user 
and word-of-mouth advertising to the effect that the manufacturer's 
product is not an acceptable one and that it does not give the results 
which the purchaser was assured that it would give at the time of pur- 
chase. The manufacturer simply cannot afford to have his products 
poorly adapted to the user's needs, poorly installed, ineffectively used 
by operators, and out of repair frequently. From a long-range point of 
view, a lack of effective service is equivalent to business suicide. But 
manufacturers have not been loath to institute the necessary service 
work. Their chief difficulties have appeared in its administration and 
in keeping service within due bounds. Because it has been used as a 
promotional weapon and, furthermore, because it is a costly activity, 
manufacturers have been prone to use it too much and without ade- 
quate payment on the part of the product user. More will be said of 
this later. First, it is necessary to direct our attention more specifically 
to the promotional aspects of service. 

As a promotional weapon the manufacturer assures the potential 
user that he, the manufacturer, has both the will and the way to see 
that the product gives the expected utility. He points through advertis- 
ing and in conversations with the prospective buyer to an extensive 


service organization, with trained specialists, perhaps engineers, chem- 
ists, packaging experts, or designers who may be placed at the buyer's 
call to solve his particular problems when the need arises. If, for 
instance, a prospect should say that he could not use a product such as 
Cellophane or metal foil for packaging material because there was no 
machine to handle it properly, the manufacturer of such material, 
through his representative, would probably say that the company's 
engineering specialists would aid him in finding the correct machine or 
in adapting his present machines to use the new material. The pros- 
pective buyer may be keenly aware of his own inability to cope with the 
problems which are likely to arise, particularly in connection with new 
technical products. He is likewise aware of the risk involved and needs 
assurance. Thus a developed organization for service work and tangible 
evidence of how it has worked effectively for other concerns create a 
strong impression in the mind of the buyer. The likely result is addi- 
tional confidence in the seller. At times the promotional appeal in 
service is so successful that the product to which the service may apply 
is largely removed from price competition. The buyer may be made 
to believe that he is getting more by way of utility, even though he pays 
more initially for one manufacturer's product than for another's. This 
may well be the fact of the matter, for he is actually purchasing what 
the product will do rather than so much physical material. 


The service problem of a particular manufacturer may fall into any 
one or all of the four categories mentioned previously. They are not 
of equal importance for all products, even though they are of a tech- 
nical nature. For some products there is no problem involved in instal- 
lation; for others afterservice is relatively unimportant. A product such 
as conveying machinery or other expensive, special-order equipment 
will run the whole gamut of service. For office equipment, survey work 
may or may not be important, demonstration is usually needed, and 
afterservice work is highly important. For household equipment, dem- 
onstration and afterservice are most needed. For supplies which are 
sold to industry — for instance, lubricating oils, solvents, steel alloys, 
synthetic plastics, or technical paints — survey work to determine just 
what product will most fully meet the buyer's need is by far the most 
important part of the service task. 

These comments suggest that the service problem varies according 
to numerous factors. The most evident of these is the need for service 


of the types mentioned, but this, in turn, depends upon the nature of 
the product. The amount of service work is likely to vary directly with 
the complexity or technicality of a product. Highly technical products 
are likely to need all types of service. Furthermore, more service is 
needed if the product has to be varied to meet the buyer's requirements, 
i.e., if it is special-order equipment rather than standardized units. Some 
products are more fragile and subject to abuse than others and thus 
require attention. New products with which the buyer is not familiar 
or products which are being changed frequently require more service 
work of all types. Although great care may be used, units of product 
may reach the final consumer which contain imperfections in design 
and thus give trouble. Many automobile users, for instance, hesitate to 
purchase a model soon after it is introduced, for they fear that some- 
thing has been overlooked and, as a result, that they will be subjected 
to inconvenience and expense. For new products, in contrast to those 
which are redesigned periodically, the adaptation problem, installation, 
and demonstration are all enhanced. Furthermore, there may be more 
likelihood of imperfection and thus the need for afterservice. 

Both the type of buyer and the nature of the market affect the 
service problem. Large buyers, such as railroads or mining companies, 
may accept the responsibility for service and thus, to a certain extent at 
least, relieve the manufacturer. They are informed buyers, they pur- 
chase in large quantities, and they are likely to maintain their own 
repair shops. A mining company may purchase pneumatic drilling 
machines in lots of fifty or more, whereas a small city or company may 
purchase one at a time for breaking up concrete or for use in excavation. 
A mining company would probably carry a complete stock of service 
parts and would probably repair the machines in its own shops. Thus 
the manufacturer's service problem would be simplified. In contrast, 
some provision would have to be made for servicing individual ma- 
chines, and this consists of making available repair stocks and possibly 
individuals who are trained to do the necessary work. 

The contrast is even more apparent when geographical market 
factors are likewise considered. The market for products which require 
technical service may be concentrated or widely dispersed. If a product 
is sold only to one industry and that industry happens to be concentrated 
in one or a few areas, then the servicing problem is less difficult. The 
mining of nonferrous metals and the production of automobiles are 
cases in point, although in the latter instance there is more dispersion of 
manufacturing activity than there was formerly. For products such as 
computing machines or small pneumatic tools the market is widely scat- 


tered. Small business enterprises, institutions of all sorts, and govern- 
mental units may be users of such equipment, and, because of their 
widely dispersed locations, the service problem becomes much more 
complicated than when the users are more concentrated. When the 
market for producers' goods is so widely scattered, it takes on the char- 
acteristics of the market for consumers' goods both in sale and in service. 
Passenger automobiles and electric refrigerators, for instance, are usu- 
ally purchased singly, the buyer is not technically informed, and he is 
usually unable to make other than minor repairs. These conditions en- 
hance the service problem. Standardization of products, lack of tech- 
nicality or complexity in products, little need for product adaptation to 
demands of particular consumers, and a preponderance of informed 
buyers and users simplify the service problem. 


First, it should be recognized that service must be charged for in 
some manner or result in a decrease in profits. If the manufacturer does 
not make a separate charge for service, then it is likely to appear in the 
supply price for the product. So-called "free service" is not actually free 
unless the manufacturer unwittingly fails to increase the price as he 
increases the service given to purchasers when he could have done so 
without adversely affecting volume. When service work is extended 
without price increase, it is more likely that competition forced such 
action than that the manufacturer failed to maintain his profit margins 
through carelessness. On the other hand, the result of additional service 
work might increase volume of business to such an extent that the same 
price could be charged for the product and still maintain or increase 
profit margins. This could result through the spread of overhead costs 
over a greater quantity of product. Under such a condition one might 
reason with some justification that the service given was free. At least, 
the buyer would receive the additional service without an increase in 
the price of the product by virtue of helping the manufacturer to in- 
crease his volume of business. 

Perhaps manufacturers at times have increased service work, main- 
tained prices, and expected an increase in business which has failed to 
appear, for there are many cases on record in which the responsibility 
for decreased profit has been attributed to the high costs of service work. 
Obviously, if all manufacturers in direct competition at much the same 
time increased the service given without a compensatory increase in 
the price of their products, the result might well be a decrease in profits. 


This would necessarily be the result unless the total volume of sales 
increased. Industrial machinery and equipment has a derived, rather 
than a direct, demand, and thus promotional work through service may 
increase the business of one company, but it is not likely to increase the 
total volume of business for all competing companies. If the individual 
manufacturer does not recognize the fact that higher service costs may 
reduce profits, he may not increase prices as such costs are increased. 
In time, nevertheless, service costs are likely to appear in the supply 
price of products or as separate charges to service users in proportion 
to use. 

Companies which have increased service and used it as a promo- 
tional weapon may find that the expected increases in business have not 
materialized and that, in the meantime, profits are being reduced be- 
cause of service costs. They begin to realize that service without direct 
charge is one of those sales activities which get out of hand easily and 
that its costs may be partially overlooked. Perhaps the lack of adequate 
service-cost records has obscured the costs involved. Furthermore, there 
may be increasing evidence that potential buyers are abusing the service 
privilege, particularly of the survey type, by taking the plans prepared 
at no expense to the potential buyer and using them to solicit bids from 
other suppliers. Unless there is a definite understanding as to the extent 
of free service which will be given, buyers may likewise be unreason- 
able in their demands for demonstration and afterservice work. In one 
instance a piece of apparatus had been in use for ten years, and yet the 
manufacturer was asked to make certain repairs on it free of charge. 
A request of this sort should never get beyond the company representa- 
tive to whom it is first made. He should take a positive stand and should 
have no difficulty in proving that the request is entirely unreasonable. 
When evidence of the adverse effect of service on profits and of the 
abuse of service accumulates, the need for a thorough study of the 
service problem becomes apparent. 

Various policies are followed in relation to handling service charges. 
In the majority of cases, however, no charge separate from that included 
in the product price is made for survey work. Installation and demon- 
stration are more generally charged for separately, but there are many 
notable exceptions. Some products are sold installed, as the buyer in- 
sists on shifting the burden of installation entirely to the seller. Separate 
charges for demonstration are the exception, rather than the rule, for 
technical office equipment. Subsequent to the termination of the war- 
ranty period, afterservice is habitually charged for separately. There 


are few cases, however, in which all types of service are designated as 
"free" or in which all types are charged for separately. Rather, the 
usual situation is a mixed one. In making decisions on these charges, 
however, certain desirable objectives should be kept in mind. In so far 
as it is possible to do so, a varying price policy should be avoided. Dis- 
crimination between buyers through the medium of service work is not 
at all unusual and is not productive of healthy business relations. 
Furthermore, it may injure a company in its competitive position in 
reference to other potential buyers. Another objective is to seek pro- 
tection against the abuse of the service privilege on the part of the 
buyer and, possibly, against the seller's own misuse of his service organi- 
zation without returns either by way of promotion, development, good 
will, or actual funds adequate to justify the cost incurred. 

There are certain guideposts which should aid the manufacturer in 
making his decision as to whether service should be charged for in the 
price of the product or separately. These will be stated in the form of 
questions, although they might easily be re-worded into generalizations. 
They are as follows: 

1. Do all buyers need and use the service offered? If certain cus- 
tomers have their own specialists and thus do not use the service which 
the seller stands ready to furnish, the products which they buy should 
not be burdened with additional price because of service rendered to 
other buyers. Charging such customers for service is tantamount to a 
varying price policy, as these buyers are thus forced to pay for some- 
thing which they neither want nor get. 

2. Is service needed and used by buyers in proportion to the size 
of their orders? If all buyers use service in the same amount and the 
business which they give the seller varies widely, the result is a varying 
price policy. If, on the other hand, the service used varies directly with 
the size of the order, no discrimination between large and small buyers 
is likely to appear. 

3. Is it to the interest of the seller to have all buyers use the service 
offered? For instance, a buyer may prefer to do his own installation 
work. It may be the experience of the seller, however, that such work 
is not done properly by the buyer and that the machine performs in- 
effectively later. Under such conditions, the seller may prefer to install 
the product. The installation charge ought then to be in the price of 
the product. 

4. Will the cost of service work be a negligible part of the product 
price? If so, there will be little discrimination, even though all buyers 


do not use service work. Then the administrative difficulties of charging 
for service separately are avoided. 

5. Is the service work likely to have an important merchandising 
function? In certain cases, service work, particularly of the survey type, 
furnishes a company's executives, salesmen, and merchandising men 
with information which may later be utilized to meet the problems of 
other buyers, for designing new products, or for adaptation of old 
products to new uses. This is well illustrated by the experience of a 
concern which sells industrial cleaning materials. 28 "The detailed 
reports supplied by our men form a unique library of technical data on 
cleaning. It is not permitted to become a mere storehouse of data. The 
information is classified and edited so that it is always available, and is 
actively used by the technical and service departments in developing 
new and improved materials and methods." In a very real sense the 
survey work of this company yields information which benefits numer- 
ous buyers rather than only the specific one to whom the service was 
originally given. 

6. Is the service work needed for all the company's products? If 
service work is needed for only certain products in a company's line or 
if it is needed in differing proportions, either it should be charged for 
separately or care should be taken to raise the price of only those prod- 
ucts for which the service work is incurred. Otherwise, certain products 
may be made noncompetitive as to price. 

7. Is the product a new one with which potential buyers have had 
no experience? Under such a condition, service costs are of a develop- 
mental nature. When uncertainty about the product weighs heavily 
against sale, the buyer would be very loath to pay separate charges for 
service. Furthermore, service costs during the initial periods of sale in 
all probability would not be loaded onto the units of product then sold. 
As a developmental expense they would be amortized in the price of 
the product over a longer period. 

On the basis of considerations brought forward by these questions, a 
rough generalization on this matter of service charges may be formu- 
lated. To the extent that all buyers need and use the service offered and 
in direct proportion to the size of their purchases; to the extent that the 
seller wishes to force the use of service; to the extent that the costs of 
service will be a negligible part of product price if they are included 
within that price; to the extent that the service work performed has an 

28 H. J. Douglas, "Service Leads to Sales," Executive Service Bulletin, Vol. XIII, 
No. 2 (New York: Metropolitan Life Insurance Co., November, 1935), p. 6. 


important merchandising function; to the extent that the service work 
is needed by all the company's products and in like proportion; and 
to the extent that service costs may be considered as developmental 
costs, service can more reasonably be charged for in the price of the 
product. To the extent that the opposite conditions prevail, there is 
more reason for making separate charges in proportion to use. 

The application of these generalizations to types of service work 
should give at least presumptive evidence as to how they should be 
charged for. For more exact determination the service problem asso- 
ciated with each product would need investigation. Survey work is 
likely to be needed by all buyers of technical products, but not neces- 
sarily in proportion to the size of orders. It is likely to be to the interest 
of the seller to do such work. Furthermore, all survey work has some 
merchandising value, for a buyer's needs are not likely to be unique. It 
may likewise have some training value for company salesmen. For new 
products, survey work is likely to have much greater advantage of a 
merchandising character. Such work, particularly for manufacturing 
equipment when it necessitates the use of an engineering staff, is costly, 
and it will constitute an appreciable part of the product price, if in- 
cluded therein. 

From the admniistrative point of view, the problem is a perplexing 
one. It is doubtful if an accurate estimate of charges for survey work 
could be made at the begining of negotiations. Furthermore, the poten- 
tial buyer might not be willing to have the seller go ahead with such 
work unless charges were determined in advance. There is always 
the chance that the work will not be productive, and someone must 
take the risk. Perry suggests that the buyer, in the very nature of the 
case, participates in this risk, for he must give assistance to those who 
are doing the work, and, therefore, such work comes to be a joint specu- 
lative venture. 29 Under such conditions it is not likely to be charged 
for separately, but the fact that a buyer's problem may be unique and 
that the service may be needed by only a few buyers may make it advis- 
able to do so. 

Installation work, if needed at all, is likely to be needed by all 
buyers and roughly in proportion to the size of their orders. However, 
the cost of such work will vary between buyers because of differences in 
location. Both the time necessary to get to and from the buyer's loca- 

28 See Raymond S. Perry, Engineering Service as an Aid in Selling ("Industrial Mar- 
keting Series," No. 15 [New York: American Management Association, 1931}), for a 
discussion of a separate charge for engineering survey work, 


tion and the cost of travel may produce considerable variation in instal- 
lation cost. If correct installation has much to do with effective 
operation of a machine, then it is to the interest of the seller to have all 
buyers make use of the installation service offered. The cost of such 
service may or may not be an important part of product price, if charged 
for therein. Work on installation will not be likely to have an impor- 
tant merchandising function. If the assumptions which have been made 
are correct, the charge for installation might well be placed in the 
product price if it were not for differences in location. This factor alone, 
however, may justify a charge separate from the product price. 

Installation and demonstration are closely associated, as they are 
likely to be done by the same person or persons on the same trip to the 
buyer's location. But for some products which may require demonstra- 
tion, installation does not enter the picture. An example is office equip- 
ment. Moreover, the factors which effect the manner of charging for 
each differ markedly. There may be a pronounced variation among 
buyers as to their need for demonstration. Some may have trained 
operators, others may not. There is little reason to believe that the 
demonstration work needed would necessarily vary directly with the 
size of the order. The location of the buyer would produce a variation 
in the cost of demonstration, as it did with installation. It is not likely 
that demonstration cost would constitute a negligible part of the prod- 
uct price, if included therein, unless the work was done for very high- 
cost installations. It is doubtful, likewise, if all a company's products 
would require the same amount of demonstration from the standpoint 
of cost. Unless the conditions are such that the cost is negligible in 
relation to the value of the product, a good case can be made for a 
separate charge for demonstration or what might be more adequately 
described as training of a buyer's operators subsequent to sale. Either 
a separate charge should be made, or there should be definite limitations 
on the amount of free service which will be given, for otherwise the 
privilege is likely to be abused. 

Afterservice is likely to be needed by all buyers of technical prod- 
ucts, but not necessarily in proportion to the amount of product in use. 
It is in part an outgrowth of the degree of mechanical perfection of a 
unit of equipment at the time of sale. During a period in which me- 
chanical defects should appear, the buyer is protected by a warranty, 
and the service required is and should be in the price of the product. 
It is also in part an outgrowth of the manner in which the product is 
used. A piece of technical equipment is subject to abuse by the oper- 


ator; also one concern may use a piece of equipment almost continu- 
ously, whereas another concern may use it intermittently. Thus the 
need for service work is marked by variation as between product users, 
and the responsibility for a greater or lesser need is on the shoulders of 
the user not on those of the manufacturer. This condition points 
strongly to a separate charge for each use of service. In addition, this 
conclusion is strengthened by the fact that the cost of the service is not 
likely to be a negligible part of the product price, if included therein; 
that afterservice is not likely to have an important merchandising 
result; and that it is not likely to be needed proportionately for all of a 
company's products. After the warranty period and, perhaps, some 
slight extension in order to hold good will when the buyer is insistent 
that through no fault of his own the product is not giving the expected 
utility, manufacturers habitually charge for afterservice. Only when 
the product is leased to the user is the manufacturer likely to charge for 
afterservice in the price of the product. In fact, all service is charged 
for in the price for the use of the product, for the physical product itself 
never becomes the property of the buyer under a lease arrangement. 
Even when conditions of product and market point clearly to sepa- 
rate charges for survey, installation, and demonstration, companies 
shrink from imposing such charges on the buyer. They are fearful of 
the reactions of the buyer and of what competition may do. This is 
particularly true for charges for survey work. Thus various compromise 
plans are used which are less objectionable from the promotional angle 
but which either recover some of the service costs or reduce the amount 
of such costs. In one instance a manufacturer of conveying machinery 
expressed his willingness to make a preliminary survey at no cost to the 
potential buyer, but later, if the buyer wished a thorough survey with 
drawings and detailed plans, a definite charge was provided for and 
payment was to be guaranteed. Sellers at times request assurance of 
purchase before the survey work is started; but, unless the seller is in a 
very strong position competitively, such a demand may seriously jeopar- 
dize the possibility of sale. A more common policy is to establish limi- 
tations on free service, with variations in proportion to the size of the 
order. This has the virtue of nondiscrimination, and it is easily under- 
stood by the buyer. If conditions in a company's plant are such that 
installation presents some unusual problems, the buyer should stand 
the additional costs incurred by the seller in making installations. Or 
if the buyer demands the services of a demonstrator over an unusually 


long period because his operators are less familiar with the equipment 
than those of most other buyers, again he should stand the additional 
costs incurred. If such limitations are placed on free service and the 
buyer is fully aware of them, that very fact will prevent abuse. His 
avarjce is not allowed to have full play. 

Some concerns may approach the problem through an attempt to 
reduce service costs. A simplification of products or a concentration of 
attention on those parts of the line which require the least by way of 
service may achieve this goal. If service costs are properly allocated to 
the different products in a line, it is conceivable that some of them 
might prove to be actually unprofitable and that the company would be 
better off without them. Arrangements with industrial engineering 
concerns have been proposed whereby the concern is induced to suggest 
a company's products to its clients. This might lessen the necessity for 
a company to do survey work for potential buyers. But companies want 
disinterested advice from concerns which sell engineering service, and 
tie-ups between engineering concerns and equipment makers might be 
productive of bias toward a maker's product when it was not the best 
product for the client. Survey costs have been reduced indirectly at 
times through a reduction in salesmen's commissions. Specialists are 
frequently made available to a salesman if the problems of the potential 
buyer are such that a greater degree of training and ability than he 
possesses are needed to solve them. If the salesmen are paid on a com- 
mission basis and must call in help to make a sale, it is only reasonable 
that their commissions be reduced. Some, although probably not all, 
of the cost of the specialist's work would thus be recovered. At least 
such an approach might deter the salesmen from using the services of 
specialists when they were not needed. More complete and detailed 
written instructions in regard to use and repair of a machine may reduce 
service costs. Finally, the service given should be reviewed periodically 
to ascertain if it could not be reduced without jeopardizing the position 
of the company. Unless costs are watched closely, service work may 
grow like Topsy, and an unrecognized cost may result in lessened 


Organization for service may involve as many and as difficult prob- 
lems as organization for sales. The number of people engaged in service 


work may be considerably greater than in sales work. One office-equip- 
ment concern prior to the war had 50 per cent more people in service 
than in sales and found that the selection, training, and supervision 
problems connected with each group did not differ markedly either in 
kind or in complexity. In this instance the company performed its own 
service work, but in others service work is delegated to independent 
dealers, and then the problems of organization and supervision become 
even more difficult to solve satisfactorily. Problems of supervision and 
control in their application to service will be touched on briefly at this 

Effect of Service on Channels of Distribution 

The need for service is a factor of no little importance in the selec- 
tion of distributive channels for a product. Because of it, the manufac- 
turer may decide on a greater measure of directness in distribution than 
he otherwise would. He may eliminate the wholesaler or jobber and 
go direct to the retailer because he thinks that service can be more 
adequately controlled through more direct contact. He may go further 
and sell his product only through exclusive agencies, as the automobile 
companies do. He is then dealing with a smaller, more selected group 
of dealers, and, as he has given them the exclusive right of sale in a 
certain territory, he can demand more of them by way of sales activity 
and provision for service. If this measure of directness does not suffice 
to get the activity in selling and the adequacy of service which he feels 
that his product demands, he may establish his own retail outlets and 
thus substitute orders to company employees for persuasion of inde- 
pendent retailers. This has been the decision, for instance, of the Singer 
Sewing Machine Company, and the high order of service to housewives 
given by the Singer stores could not or would not, in all likelihood, 
be duplicated by retailers, even if they were given exclusive agencies. 
In the sale of industrial equipment likewise, the need for service is 
conducive to more direct distribution. It is not the only affecting factor 
or perhaps, the chief one in certain cases but, nevertheless, jobbers and 
manufacturers' agents are relatively ineffective in service work, and 
thus there is additional motivation toward direct sale. Frequently, rep- 
resentatives of the manufacturer are called in for consultation prior to 
sale or for demonstration and afterservice work, even though the equip- 
ment is sold through intermediaries. If the manufacturer does such 
work, then it is only a short step to direct sale as well as service. 


Location of Service Work 

The location of service work is largely conditioned by the nature of 
the product and the density of its use. Even survey work for some ma- 
chinery and equipment may largely be done at the home office of the 
seller. After the salesman has made a preliminary survey of a buyer's 
needs, sales engineers at the home office may decide upon the best 
methods of handling the customers' work, prepare the necessary draw- 
ings, design tools to be used in special machines, and make time studies 
for guidance of the buyer. For other types of equipment — for instance, 
conveying machinery — survey work must largely be done at the plant 
of the buyer. It is a question of adapting a product to a given setup of 
physical conditions, and these must be the subject of constant study. 
Demonstration is likely to be at the plant of the buyer, although oper- 
ators may be trained elsewhere. Installation, of necessity, is at the 
location of the buyer. 

Afterservice work may be done in a number of locations and by 
different agencies. It may be done by the producer at the factory, by 
the producer at regional service stations, or at the location of the user 
by a representative of the seller, by local dealers in the product, by local 
artisans, or by the buyer himself. Whether a product should be repaired 
at the point of use or at the point of origin largely depends upon its 
characteristics. Some products can be returned to the factory for repair, 
others cannot. For instance, products such as cash registers and com- 
puting machines are easily movable, whereas engines and lathes may 
be set in concrete. Likewise for the former, transportation costs are not 
particularly high in relation to the value of the product, and the pres- 
ence of highly specialized equipment and factory-trained personnel may 
be needed in order to make repairs satisfactorily, at least for an overhaul 
job. Afterservice for these products, other than slight repairs, is done 
at the factory or at the regional service stations connected with district 
offices. Which of these locations is chosen depends, in turn, on density 
of use. If there are enough machines in use and thus a sufficient volume 
of repair work to be done, the manufacturer can afford practically to 
duplicate the factory setup for repair work at district offices. Whether 
the manufacturer should do the repair work through his own repre- 
sentatives or delegate the work to others likewise depends upon the 
characteristics of the product. For a highly technical, special-purpose 
machine only skilled individuals who are trained at the factory can be 
used. When less skill is needed, the work may be delegated to others, 


for instance, to exclusive agents, or the buyer may be able to do the 
work himself. 

Control of Service in Distributive Outlets 

The control of service in distributive outlets involves, among other 
things, provision for adequate training in relation to the product. Obvi- 
ously, a dealer or his sales or servicemen cannot demonstrate, install, 
or repair a product unless they know it thoroughly. Still, despite the 
efforts of manufacturers, it is at this point that retailers and other 
distributors frequently fall short of the desired proficiency. Control 
must also be exercised over the equipment used in service and the stock 
of repair parts carried. These matters cannot be left to the discretion 
of independent distributors. Controls must be devised to govern this 
matter of parts stocks, and constant supervision must be exercised to 
see that they are made effective. Few things are more destructive of 
good will than having to stop production while a machine part is pro- 
cured. This is especially true if the difficulty can be traced directly to 
negligence on the part of the machine producer or his representatives. 
Inability to use an automobile or a washing machine because some 
dealer has failed to maintain his repair stocks has a like effect, and, if 
it is repeated too frequently, subsequent purchases are likely to be of 
another make. Control may also be exercised over service costs to 
equipment users. Standard costs are used for some items of repair in 
the automobile industry, ostensibly, at least, to protect the user. Per- 
haps they do serve as protection against excessively high charges; but, 
inasmuch as they have the approval of authority, they also protect the 
dealer, as they allow him to charge what is likely to be a reasonably 
generous amount. In other words, control over parts and service 
charges to the user is one means of maintaining a financially healthy 
group of dealers, and this is of first-rate importance to the manufacturer. 

Home-Office Organization for Service 

Frequently, departmental units in the home office or possibly in 
district offices follow roughly our general service classification. This 
is actually specialization on the basis of the task to be performed. In 
one concern which sold grinding machines, there were four depart- 
ments under the sales manager, each of which was headed by a sales 
engineer. One of these departments made recommendations to cus- 
tomers as to the machinery which should be used, designed special 
attachments to meet specific needs, figured costs, and made time 


studies; the second handled all correspondence with customers, inter- 
preted orders, and acted as a coordinating agent with the production 
departments; the third was in charge of all demonstration, installa- 
tion, and afterservice; the fourth handled the details of office man- 
agement. This department setup had much to commend it. The 
first unit was freed from details and could devote itself to merchan- 
dising work. Customer contacts were centered in the second unit, and 
an agency was provided whereby co-ordination between production and 
sales could be achieved. The third unit was in charge of the field service 
work; and, as these three types of service required men of the same 
training and ability and since they needed co-ordination among them- 
selves, inclusion in a single departmental unit was good policy. 

Other concerns largely separate their sales and service work in their 
organizational structure. Although there is likely to be co-ordination 
through one ranking executive at the top, farther down there is much 
independence in action. While there must be a certain amount of 
co-operation between departments handling sales and service work, still 
a certain degree of independence between them may protect the posi- 
tion of the product-user. The service department should be willing to 
give a disinterested appraisal of the condition of a machine, and this is 
difficult if the same department or the same people are likewise charged 
with the responsibility of making sales. There appears to be much 
reason for divorcing sales and service along departmental lines for such 
products as cash registers, computing machines, automobiles, and some 
household appliances. Not only will the user be protected, but the 
essential differences in the task involved make such action advisable. 


When the buyer cannot get the expected utility from a product en- 
tirely by his own efforts, it should be the policy of the seller to provide 
for adequate service. Adequate in this instance should connote service 
which avoids as much inconvenience and annoyance for the buyer and 
as much interruption of work as possible. Furthermore, the work in- 
volved in service should be so arranged and administered that it is done 
at a reasonable cost. Still it should be recognized that ready availability 
of service and reliable service work are much more important than low 
cost. People, in general, are not averse to paying a reasonable charge, 
even something in addition, if they can be sure that the work is done 
properly and that their troubles with the product are thus over for the 
meantime. On the other hand, few things are more irritating to the 


user and more destructive of confidence than to discover, subsequent to 
the performance of service work, that th£ difficulty with the product has 
not been overcome. In order to protect the reputation of its products, a 
company should have adequacy of service, with all that that term sug- 
gests, as the cornerstone of its service policy. 

The need for a definite policy on service should be stressed. Per- 
haps it is more needed for service than for many other activities of a 
business enterprise, for service of the survey type is a promotional 
weapon which has customarily been used indiscriminately. Like any 
powerful weapon for influencing the potential buyer, it can be used to 
excess and, furthermore, is likely to be so used for those products which 
are not characterized by an expansible demand. As the value in service 
work is very apparent to the buyer and, seemingly at least, he may be 
getting it without charge, use beyond the seller's expectations, even 
beyond his wishes in the matter, has not been unusual. Any activity in 
business which gets out of hand so easily needs careful study in order to 
create a definite policy and to establish procedures and controls which 
will put that policy into effect. 

An effective service policy should also comprehend definiteness of 
arrangements between the seller and the buyer, even in some cases prior 
to survey work. All services for which no definite charges are to be 
made should be carefully defined as to nature and scope. If charges are 
to be made for portions of the service work, the buyer should be so 
advised, and every effort should be made to establish the fairness of 
such charges. By such definiteness and prior knowledge on the part of 
the potential buyer, the seller can, at least partially, be protected against 
unreasonable demands and the abuse of the service privilege on the 
part of the buyer. The buyer likewise is protected, as he can more 
readily judge the value of the products and services contained in com- 
peting proposals. He needs definite information in regard to what each 
bidding company proposes to do in order to arrive at an intelligent deci- 
sion regarding purchase. Ease of administration is another likely out- 
growth of definite arrangements and an established service policy. 
There must be standards for guidance of those individuals who handle 
service matters, for otherwise each particular arrangement or com- 
plaint will require executive attention. This is the chief virtue of a 
settled policy and of established procedures for putting a policy into 

Service should be administered and charged for in such a manner as 
to avoid a varying price policy. While this should be done as a matter 


of policy, it should be recognized that all price discrimination cannot 
be avoided, especially when people buy a product under dissimilar 
conditions and require service in varying amounts. It is not wise to 
attempt to remove all price discrimination, as small variations are un- 
important. An attempt to do so would unnecessarily complicate the 
price structure and prove administratively difficult to handle. Still, it 
should be a company's policy to administer service in such a manner 
that varying price is at least largely removed when conditions are such 
that substantial variation is likely. 

Policies should be based on experience as well as on deductive 
reasoning, and adequate records are thus highly essential if a concern 
is to act rationally in relation to service work. Experience resides in 
records and in the minds of men. The former are much more likely to 
be exact and uncolored by reactions to very recent experience. Those 
who are responsible for service should know what proportion of service 
costs are incurred for different types of machines, types of customers, 
and the relationship between costs and the size of the order. They 
should also attempt to find out the effect of service work on subsequent 
purchases by the same buyers. Such information, if used, will aid in 
the pricing of products; in determining whether a separate charge for 
service should be made; the amount of the charge, whether for survey, 
installation, demonstration, or afterservice; the promotional advantage 
of service; and, perhaps, will furnish some evidence as to the aid given 
in merchandising work. Only through adequate records can a company 
know whether, in fact, a varying price policy is being followed and thus 
be able to reduce the extent of variance by appropriate action. In 
general, complete information on service costs is likely to result in more 
acceptable decisions on the part of management through lessening the 
area in which hunch and guesswork have their way. 


American Medical Association, issued under the Direction and Supervision of 
the Council on Pharmacy and Chemistry. New and Non-official Remedies, 
1943, pp. 1-24. Chicago: American Medical Association, 1945. 
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Foundation Press, Inc., 1936. 
Bogert and Fink. "Business Practice Regarding Warranties in the Sale of 
Goods," Illinois Law Review, Vol. XXV, No. 4 (December, 1930), pp. 

Childs, Leslie. "Validity of Contract Limiting Liability of Warranty," Industrial 
Marketing, Vol. XXVII, No. 2 (February, 1942), p. 32. 


"Civil Liability in the Manufacture and Sale of Foods and Beverages," University 
of Pennsylvania Law Review, Vol. XCII, No. 3 (March, 1944), p. 306. 

Digges, I. W. "Guarantees in Advertisements as Viewed by Federal Trade 
Commission," Printers' Ink, Vol. CXCIX, No. 11 (June 12, 1942), p. 41. 

Federal Trade Commission, In the Matter of Hearst Magazines, Inc., Docket No. 
3872, Complaint August 17, 1939; Findings as to the Pacts and Conclusion, 
and Order to Cease and Desist, May 13, 1941. Washington: Federal Trade 

Goodrich, Herbert F. "A Modern Commercial Code," Pennsylvania Bar Asso- 
ciation Quarterly, Vol. XVII, No. 2 (January, 1946), p. 182. 

Lusk, Harold F. Business Law: Principles and Cases, chap. xxii. Rev. ed. Chi- 
cago: Richard D. Irwin, Inc., 1940. 

Schwarz, Dr. Ernst. "Making a Guarantee Do Double Duty," Executives Service 
Bulletin, Vol. XV, No. 9 (September, 1937), p. 3. (New York: Policy- 
holders Service Bureau, Metropolitan Life Insurance Company.) 

"Verdict: Sales Talk and Warranties," The Spectator: The Property Insurance 
Review, Vol. Ill, No. 14 ( December 30, 1937 ) , p. 22. 

Void, Lawrence. Handbook of the Law of Sales, chap. vi. St. Paul, Minn.: 'West 
Pub. Co., 1931. 

Waite, John Barker. The Law of Sales, chap. vi. Rev. ed. Chicago: Callaghan 
& Co., 1938. 

Williston and McCurdy. Cases on Sales, chap. viii. Cambridge, Mass.: The 
Authors, 1932. 

Woodward, Frederick Campbell. Cases on Sales, chap. iii. 3d ed. St. Paul, 
Minn.: West Pub. Co, 1933. 


American Management Association. Improved Controls for Marketing Manage- 
ment, "Consumer and Industrial Marketing Series," No. 19. New York: 
American Management Association, 1935. 

Douglas, H. J. "Service Leads to Sales," Executives Service Bulletin, Vol. XIII, 
No. 2 (November, 1935), p. 6. (New York: Metropolitan Life Insurance 
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Lester, Bernard. Marketing Industrial Equipment, chap. ix. New York: Mc- 
Graw-Hill Book Co, Inc., 1935. 

Lester, Bernard. Sales Engineering. New York: John Wiley & Sons, Inc., 1940. 

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Maynard, Harold H, and Beckman, Theodore N. Principles of Marketing, chap, 
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Alderson, Wroe, 195 n. 
Alexander, Ralph L., 51 n. 
Alford, L. P., 51 n. 

American Cyanamid Company, 25, 34 
American Dental Association, 86 
American Medical Association, 86 
Armour & Company, 20, 143 
Automobile Manufacturers Association, war- 
ranty suggested by, 255-56, 264-65 

Baekeland, George, 38 nn. 

Baird, D. G., 68 n. 

Bakelite Corporation, 192 

Balderston, C. C, 54 n. 

Baldwin Locomotive Works, 64 

Baum, Roland L., 209 

Bell, W. B., 25 n., 34 n. 

Bendix Home Appliances, Inc., 20 

Blanchard, F. S., 221 n. 

Botany Worsted Mills, 60 


of assembly parts, 128-29 
brand names, selection of descriptive, 
134, 136-37 
desirable characteristics of, 134-35 
generic use, danger of, 137 
consolidation of, 147-49 
coverage of 

different product qualities, 144-46 
many products, one brand, 141-43 

criteria for selection, 142 
market sectors, 146-47 
one product, many brands, 143-44 
definition of, 118 % 

of distributors 

economic function of, 132, 154 
meeting competition of, 150-54 
objectives of, 150 
price reductions through, 150 
of finished products, 126-28 
manufacture under, distributors, 130-33 
manufacturers' versus distributors', 149- 

national versus private, 121 
objectives of 

independence in pricing, 122-25 
market control, 121-22 
promotional versus protectional, 125 
significance of, to consumers, 126 
specific problems of, 125-33 
of textiles, 129 
versus trade-marks, 118 
types of, 120-21 
Brassell, Allen L., 84 n. 

Brightman, Harold, 230 n. 
Burns, Arthur R., 62 n. 
Bush, Vannevar, 38 nn. 

Callmann, Rudolph, 33 n. 

Cannon Mills, 146 

Carson Pirie Scott and Company, 201 n. 

Certification mark 

definition of, 119 

registration of,- 171-72 

bases for cancellation of, 172-76 
Clark, J. M., 56 n. 
Cluett, Peabody & Company, Incorporated, 

Collective marks, registration of, 171-72 
Conant, W. H., 73 n. 
Cowan, Donald R. G., 77 n., 98 n., 108 n. 
Craig, David R., 5 n. 
Cumming, James C, 129 n. 

Demand, consumers' 

qualitative adjustments to, 2 
quantitative adjustments to, 2-3 

Department of Agriculture, U.S. 
advocacy of grade labels, 233 
continuous inspection service, 233-34 

Design piracy, 33 

Deveneau, Willard F., 194-95 

Dickinson, Roy, 72 n. 

Douglas, H. J., 277 n. 

Dow Chemical Company, 130 

duPont, (E. I.) de Nemours and Company, 
12, 31, 32, 64, 196 

Eastman Kodak Company, 29 
Elder, Lucius W., 203 n. 
Electrolux Corporation, 136 
Electromaster, Incorporated, 46 
Elrich, Robert F., 97 n. 
Experimentation, in testing, 93, 101, 104-6, 

Federal Trade Commission, 160, 172, 183, 

Fixed costs, utilization of, 58-61 
Food, Drug, and Cosmetic Act 
labeling requirements of, 224-27 
notices of judgment 
labeling, 227-28 
packaging, 205 
packaging provisions of, 203-5 
Ford Motor Company, 107 




Gabler, Werner K., 5 n. 

General Foods Corporation, 30, 31, 99 n., 

100, 199, 200 n, 203 n. 
General Mills, Inc., 45, 65, 71 
Good Housekeeping, 86, 260-62 
Goodrich Company, B. F., 6, 29 
Gragg, Mabel Taylor, 84 n. 

Hahn, A. R., 206 n. 
Hay ward, R. A., 12 n. 
Herrick, Arthur D., 228 n. 
Holleran, O. O., 66 n., 69 n. 
Hormel and Company, George A., 21 
Howlett, Henry J., 208 n. 

International Business Machines Corpora- 
tion, 63 
Interviews, survey techniques 

preliminary testing, 94 

problems of, 94 

selection and training of personnel for, 
Invention, incentives to, 24 

company relations with, 30 

responsibility, product development, 6-7 

as sources, product ideas, 29 

Kroger Co., The, 143 

Labels and labeling 

advantages of, if effective, 240-43 

definitions, 215 


descriptive versus, 219-20 
outline for, 230-31 
purposes of, 230 
manufacturers' attitude toward, 220-21 
manufacturers' labeling problems 

advocacy of grade labels, O.P.A., 235 
grade versus descriptive, 232-36 
nomenclature, 236-37 
opposition to grade labels, 234-35 
U.S. grades, canned goods, 233 
use of inserts, 237-38 
product evaluation, 223 
selection of information 

to comply with legislation, 224-28 
through voluntary action, 228-32 
policy, 220-21, 242-43 
recent emphasis on, 216-19 
Laboratories, testing 
certification by, 87-90 
equipment used by, 83-84 
independent versus company, 87 
services of, 83-84 
types of, 86 
Lanham Act 

definitions of, 119-20 
features of, 158-61 

Lanham Act — Conf,. 

Federal Trade Commission, responsibility 
of, 172, 179-80 

important provisions of 
assignment, 170-71 
cancellation, 177-80 
concurrent registration, 167-69 
incontestability, 180-82 
secondary meaning marks, 176-77 
use by related companies, 169-70 

MacLeod, J. H, 268-69 
Market analysis 

qualitative, 2 

quantitative, 2 
Market testing, products 

choice, test markets, 103 

nature of, 78-79 

procedures in, 103-6 

of styles and designs, 104-5 

test lines, their use, 106 
Mathis, George W., 64 n. 
Merchandising function, 2-3 
Miller-Tydings Act, 124, 132 
Montgomery, Ward & Co., Inc., 259 

National Consumer-Retailer Council, Inc. 

co-operation offered, 231-32 

master label outline, 230-31 

purposes of, 217 

representation on, 217 
New England Confectionery Company, 103 
Nielsen Company, A. C, 42 n. 

Ooms, Casper W., 159 n., 169, 173 n., 178 
Owens-Illinois Glass Company, 60, 196 n. 

Package inserts, 237-38 

of automobile oils, 187-88 
basic objectives in, 186-89 
complexity of problem, 189-93 
contribution, other concerns 
material suppliers, 210-11 
professional designers, 211-12 
economic implications of, 189-91 
of fresh meats, 189-91 
a multivariable problem, 192-93 
need for co-operation in, 213 
organization and procedures 
committees, 207-9 
company organization, 208-10 
procedural rules, 209-10 

initial steps in, 206 

compliance with legislation, 203-5 
cost reduction, 201-3 
extension of the market, 200-201 
promotional, 196-201 
timing of changes, 194-95 



Packard Motor Company, 44 
Panels and juries, consumer 

administration of, 101-2 

of General Foods Corporation, 99 

new or continuing, 101 

selection of testers, 99-100 

testing by, 98-102 
Perry, Raymond S. 278 n. 
Philco Corporation, 65 
Pierce, Frank R., 53 n. 
Population changes, U.S., 14 

effect of branding on, 122-25 
Product development 

extent of, recent years, 11-13 

forms taken in, 9 

general reasons for, 13-18 

versus price competition, 17 

procedures in, 34-36 

sources of product ideas, 23-33 

specific incentives for, 18-23 
Product ideas, sources of, 23-33 
Product introduction 

restraint of trade, 37 

timing of, 36-39 

withholding products, 37 

Product line, expansion of (see also Prod- 
uct line, expansion of) 

absence of policy, 43 

desire for complete line, 61 

manufacturing and marketing require- 
ments, 71 

nature of problem, 41 

variables in product structure, 44-45 
Product line, expansion of (see also Prod- 
uct line, constitution of) 

alternatives to 

increased sales, established products, 

price concessions, 56-58 

limitations to 

channel of distribution, 68 
duplicating organization, 70 
performance of sales force, 67 
promotion policies, 69-70 
provision for service, 67-68 
quality maintenance, 66-67 

objectives of 

combination of risks, 64-66 
complete line, desire for, 61-64 
fixed cost utilization, 58-61 

reasons for, 55-66 
Product planning 

importance of, 1 

organization for, 8 

responsibility for 

within a concern, 7-8 
of consumers, 3-4 
of distributors, 4-6 
of industrial buyers, 6 
of investors, 6-7 

Product testing 
by consumers 

a continuous process, 79, 90-91 
levels of, 77-79 
market testing, 102-6 
post- testing, 106-13 
pre-testing, 95-102 
problems of 

control and supervision, 93 
eliciting information, 93-94 
location of, 93 
sampling, 92-93 
terms of measurement, 94-95 
extent used by management, 113-15 
by independent laboratories 
advantages of, 87 
certification, 87-89 
equipment developed, 83-84 
significance of, 80-82 
technical versus consumer, 77-80 
technical testing, 82-90 

analysis versus performance, 82-86 
of competitors' products, 82 
performance testing, 83-86 
alternatives to, 85 
difficulties of, 83 

through simulated use conditions, 
Product variety 

illegitimate demand for, 48-49 
market demand for, 45 
need of records to govern, 49 
optimum number, 52-55 
versus price, as patronage motive, 53-54 
promotional effect of, 46 
reduction of, 48-52 
Production capacity, excess 
reasons for, 20 
utilization of, 19 
Purchasing, by consumers 
how assurance is given 

company reputation, 248-49 
express warranties, 253-56 
implied warranties, 250-53 
organization for service, 250 
why assurance by seller needed, 246-48 

Questionnaires, mail 

advantages and disadvantages of, 110-13 
errors in construction of, 112 
preliminary testing of, 113 
use of, 93-94 

Rabb, Norman S., 150 n. 

Ratcliff, J. D., 28 n. 

Restraint of trade, through withholding 

products, 37 
Risks, combination of, 64-66 

Sampling, problems of, 92-93, 100 
Schnering, Otto, 59 n. 
Sellers, M^-tie, 99 n, 



Seals of approval 

Federal Trade Commission versus Good 

Housekeeping, 260-62 
as warranties, 255 
Servel, Incorporated, 136 

charges for service work 

arrangements with buyers, 280-81 
indirect, in price versus direct, 276-81 

criteria for judgment, 277-78 
policies followed, 275-76, 280-81 
classification, service work, 270-71 
effect on prices, profits, 274-75 
factors which affect problems, 272-74 
nature of, 267-71 
organization and administration 

control of, in distributors' outlets, 284 
departmentalization for, home office, 

effect on distribution channels, 282 
location of, 283 
policy suggestions for 

adequacy versus price, 285-86 
definiteness of arrangements, 286 
need for cost records, 287 
nondiscrimination, 286-87 
promotional versus protective aspects of, 

technical versus nontechnical, 271 

Service marks 

definition of, 119 

registration of, 171-72 
Sherwin-Williams Company, 135 
Simmons Company, 81 n. 
Simplification of line 

cost-savings advantages, 51-52 

limitations on policy, 50-51 

need for, 49-50 

simplified practice agreements, 50-51 
Socony- Vacuum Oil Company, Incorporated, 

Specht, F. W., 190 n. 
Sullivan, M. S., 103 n. 
Swift & Company, 98 

Test lines, use of, 80, 106 

versus brands, 118 

definition of, 119 

legal rights in, 155 

legislation, a review of, 156-61 

protection of, 154-83 

dual problem of, 154-55 

advantages acquired, 164-65 

on Principal versus Supplemental 
Register, 166-67 
concurrent, 167-69 

Trade-Marks — Cont. 
registration — Cont. 

grounds for cancellation of, 159-60 
incontestability of, 160-61, 180-82 
procedures affecting, 162-64 
restrictions on, 161-62 
selection of, 138-41 

contribution of psychology in, 140 n. 
criteria for, 140-41 
promotional and protectional objectives 
in, 139-40 
Trading-down and trading-up, 47—48 

Underwriters' Laboratories, Inc., 86 n. 
Uniform Sales Act 

implied warranties of, 251 

revision of, 251 n. 
United States Testing Co., Inc., 84 

certification plan of, 87-90 


of assembly parts, 265 n. 

of Automobile Manufacturers Association, 

255-56, 264-65 

by authority, other than producer, 255 
circumstances under which given, 254 
conditions warrantied under, 254-56 
definition of, 253-54 

definition of, 250 
disclaimers of, 253, 265 
of suitability, merchantability, 252 
under Uniform Sales Act, 251 
of Montgomery, Ward & Co., Inc., 259 
promotional versus protective aspects of, 


arguments against, 259 
costs of, 262-63 
restraints on use of, 260-63 
as sales arguments, 257-58 
to secure dealer good will, 258 
versus testimonial advertising, 260 

definition of, 263 
provisions of, an example, 264-65 
purposes of, 263 
through seals of approval, 255, 260-62 
standard, of trade associations 
administration of, 267 
avoidance of competition through, 266 
reasons for, 266 
Weaver, Henry G., 91 n. 
Wheeler-Lea Amendment, 241 
Whitmore, Eugene, 61 n. 
Williamson, Percy E., 177 n. 
Wolcott, Roger, 230 n. 
Wool Products Labeling Act, 218 

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